Ford Motor Co.

The negative outlook reflects at least a 1-in-3 chance we will downgrade Ford to 'BB' in 2021. This reflects the downside risks to our volume recovery assumptions across regions and higher costs, weaker-than-expected performance in China, and the potential for significantly weaker free cash flow in upcoming quarters stemming from ongoing production shutdowns related to the semiconductor shortage. We could lower our rating on Ford if: Weaker demand prospects, adverse competitive developments (excess inventory, increased incentives, market share losses, or unfavorable shifts in consumer demand away from trucks) reduce profitability prospects below regional targets, making it unlikely that its EBITDA margins would exceed 5% in 2021; Ford's debt-to-EBITDA ratio exceeds 4x; or Free operating cash flow (FOCF) to debt remains

... will impede improvement in profit margins in 2021. Despite a stronger-than-expected operating performance in North America and Europe, we see ongoing headwinds in realizing 8% EBIT margins over the next two years. In the next 3-5 years, Ford Motor Co. expects to incur restructuring charges of up to $5 billion (with cash-related charges of $5.7 billion), which we expect will focus on its unprofitable operations outside North America. With the recent announcement of additional plant shutdowns in Brazil, we expect EBIT margins to improve but remain below the company's stated goal of 8% over the next two years because of ongoing carbon dioxide compliance costs globally. And as a result of the global semiconductor chip shortages, Ford has estimated it will have to reduce first-quarter production 10%-20%. However, if this shortage continues longer than expected, it would likely decrease the company's full-year adjusted EBIT up to $2.5 billion...

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