Moody’s downgrades Ford and BMW, warns of coming ‘credit shock’
New York — BMW and Ford Motor were downgraded by Moody’s Investors Service and their major US and European competitors were put under review for possible cuts as the coronavirus pandemic raises risks for carmakers worldwide.
BMW, the European carmaker with the best credit profile, was dropped one level to A2, while Ford’s rating fell to Ba2, another step into junk. Moody’s put General Motors under review along with Daimler, Jaguar Land Rover Automotive, PSA Group, Renault, Volkswagen, Volvo Car and McLaren Holdings.
The rapid spread of the coronavirus outbreak, a deteriorating economic outlook, falling oil prices and asset price declines are “creating a severe and extensive credit shock”, Moody’s said this week in a statement about the European carmakers. “The combined credit effects of these developments are unprecedented.”
The credit warning comes as vehicle manufacturers and their parts suppliers halt factories on both sides of the Atlantic amid government measures to isolate populations and restrict travel. The wave of work stoppages comes after the viral epicentre moved to Europe from China and intensifies in the US, crushing sales and rippling through supply chains.
Demand will be “reduced meaningfully over the coming months”, especially in Europe and North America, Moody’s said. It expects global demand will shrink about 14% in 2020 and could slump by roughly a third in the second quarter.
Moody’s for now assumes GM and Ford’s full-year shipments will drop by as much as 18%, though it warned “risk to the downside is considerable.” GM shares pared a gain of as much as 9.6% to trade up 5.5% as of 3pm in New York. Ford advanced 15% to $5.71.
S&P Global Ratings still ranks Ford one step above junk. The firm also put GM’s rating on watch for negative action on Wednesday.
“Automaker credit rankings are increasingly under pressure — another negative catalyst for bondholders — and we suspect more downgrades loom globally, with Ford and Renault possibly becoming fallen angels,” Bloomberg Intelligence analyst Joel Levington said in a note.
French finance minister Bruno Le Maire this week pointed to the country’s vehicle and aeronautics industries as needing government support. The state has holdings in Renault and PSA. While Renault chair Jean-Dominique Senard has dismissed a renationalisation of the carmaker, he told Le Parisien the firm may ask for government guarantees.
VW brand’s global sales chief Juergen Stackmann told Frankfurter Allgemeine Zeitung in interview he expects a “normalisation” of the situation on the German manufacturer’s home turf in the summer. The coronavirus won’t disappear entirely by then, but society and the economy can’t cope with a shutdown that lasts for longer, he said.
The outlier in Moody’s latest report was Fiat Chrysler Automobiles, placed under review “with uncertain direction”. The Italian-American manufacturer faces the same daunting situation as peers, but the planned merger with PSA might potentially result in a higher rating of the combined group than Fiat Chrysler’s current stand-alone rating, it said.
BMW’s downgrade was driven by its already weak standing within the A1 ratings category, the agency said.
The Munich-based carmaker last week warned that both profit and sales would fall significantly in 2020 as the pandemic disrupts production and supplies. The company has idled its European plants, as well as its largest plant in the US in South Carolina, for more than two weeks.