Fitch downgrades Ford credit rating another notch

DETROIT (AP) - Fitch Ratings downgraded Ford Motor Co.'s credit rating deeper into junk status Monday, projecting that the automaker could burn through so much cash it will reach its minimum operating levels in the second half of next year.

The credit ratings agency said it reduced Ford's issuer default rating one notch to "CCC" from "B-." Both ratings are noninvestment, or junk, grade. The downgrade includes Ford's finance arm, Ford Motor Credit Co.

Fitch analyst Mark Oline said the growing impact of the credit crisis on auto sales, supply chain financial risks, the financial health of dealerships and the capital advantage of its Asian competitors are all factors in the downgrade.

"These issues are compounding the already severe stresses resulting from weakening economic conditions and the migration to fuel-efficient vehicles," Oline wrote in a note to investors. "Plummeting sales volumes will accelerate negative cash flows in the second half of 2008 and will result in deep cash drains through 2009."

Even though Ford has made progress in cutting costs, and commodity prices have eased, the automaker could reach its minimum operating cash requirements of $10 billion to $12 billion in the second half of 2009 unless it raises more capital or sells assets, Oline wrote.

Ford had $26.6 billion in cash at the end of the second quarter, and it has access to an $11.5 billion revolving line of credit, Oline wrote. But that has been reduced by the bankruptcy of Lehman Brothers, which had committed to lend $890 million.

The automaker also has liquidity sources in the $25 billion federal loan program for the industry and possible delays in its payments to a union-administered trust fund that will take over retiree health care expenses starting in 2010, Oline wrote.

Fitch downgraded General Motors Corp. to "CCC" on Sept. 22, citing similar factors.

"Although Ford remains the best positioned among the Detroit Three in terms of liquidity, financial resources, manufacturing footprint and intermediate-term product plans, these relative attributes are being overwhelmed by industry conditions and the impact of the credit crisis," Oline wrote, adding that Fitch does not expect industry sales to bottom out until 2009.

Ford shares fell 63 cents, or 15.6 percent, to $3.42 in afternoon trading as the Dow Jones industrial average fell more than 700 points. Earlier Monday, Ford shares dropped as low as $3.32, their lowest price since Nov. 14, 1985, according to the Center for Research in Security Prices at the University of Chicago.