Ford Motor Co.

The negative outlook on Ford Motor Co. reflects the increased likelihood of a downgrade to 'BBB-' over the next 12-18 months given prolonged weakness in Ford's profitability and cash flow relative to our expectations for 2018 through 2020. Higher commodity costs and increased regulatory costs, including costs to expand its portfolio of electric vehicles, will add significant pressure on margins despite ongoing cost-reduction initiatives. We could lower our ratings on Ford if the company is unable to address the recent underperformance in China and Europe or to sharpen focus on profitable segments across its global portfolio in a timely manner. Specifically, we would downgrade the company if the combined effect of unprofitable segments, excess inventory, increased incentives, market-share losses, or

... pressure on Ford's profitability and long-term competitive position.A weakening sales outlook in the world's largest automotive market adds additional pressure on Ford's ability to regain lost market share and restore relationships with dealers and joint-venture partners. Though 60% of Ford's lineup in China will be refreshed or new by the end of 2019, we expect this transition to take time, amid key management changeovers and product launches, and do not expect EBIT margins to approach historical levels. Intense competitive pressure along with increasingly desirable low-cost products from domestic producers will add more risks. Beyond 2020, a key rating factor will be the company's ability to establish a competitive advantage in the electric-vehicle segment in this critical market, which will attract substantial competitors, many of which will benefit from a larger scale relative to Ford....

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