The global losses suffered during Ford Motor Company's weak third quarter period could be a sign of things to come with cash flow remaining negative for the next few years, according to Moody's Investors Service.

As reported yesterday (23 October) Ford posted global pre-tax losses of US$1.8bn and a negative operating cash flow of $3bn for Q3, citing operating challenges in the North America, Asia Pacific and Africa, and Premier Automotive Group for the deficit.

Moody's senior vice president and auto industry analyst Bruce Clark said: "Ford's rating at B3 anticipated further weakness in financial results as indicated by the company's need to accelerate its restructuring initiatives. Nevertheless, Ford's outlook remains negative.

"The key to Ford's Way Forward restructuring plan is to reduce capacity by buying out 25,000 to 30,000 hourly employees and to shift its product line toward cars and more fuel efficient vehicles.

"The problem is that the financial benefits of the programme don't begin to kick in until 2009. This means that even if things go according to plan, Ford will likely burn through a significant amount of cash during 2006 and 2007. The rate of cash consumption could improve in 2008, but cash flow could still be negative in that year."

Moody's last month downgraded the company's long-term rating to B3 due to the weak large vehicle sales and a rise in materials costs, which was reflected by this month's results.

Despite global losses, Ford announced that profitability continued in South America and at Ford Credit, adding that Ford Europe had so far showed a year-over-year improvement in 2006, and could deliver full-year profitability.

Moody's said that Ford would face a significant level of cash consumption during 2007 and 2008, with the firm to consider accessing the secured debt market in order to bolster its cash position.

"Given the extended time frame of the Way Forward restructuring plan and the level of cash that may be required through 2008, it will be important for Ford to increase its cash position in order to provide an adequate liquidity cushion," Clark added.

In a separate analyst note, Standard & Poor's Ratings Services has placed its 'B' senior unsecured debt issue ratings on Ford Motor Company on CreditWatch with negative implications, reflecting the potential for unsecured creditors to be disadvantaged if Ford were to incur a material amount of secured borrowings, S&P said.

"The rating on Ford's senior unsecured debt could be lowered by up to two notches below the corporate credit rating ('B')," said Standard & Poor's credit analyst Robert Schulz, "reflecting the unsecured debt's disadvantaged recovery prospects in the event of a bankruptcy by Ford."

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