Ford Gets Its Blue Oval Out of Hock
Picture this guy wandering into a pawnshop. He puts fingers to jaw, gazes uncertainly, and asks the owner: "I'm looking for a... a kind of decal, I guess you could call it. I was in here a few years ago and had to pawn it. It's about yay-big, sort of oval. Blue. It has my family name written on it in cursive: 'Ford.' Have you seen it?"
There's a happy ending to this story. Turns out, the pawnbroker still has Mr. Ford's famous Blue Oval in stock -- and on Tuesday, Ford (F) got it back.
Burning cash, dogged by creditors, and deeply in debt, Ford Motor Co. had to hock its most famous icon back in 2006, putting it up as security for $23.4 billion worth of loans from its creditors. The move saved Ford from following General Motors (GM) and Chrysler into bankruptcy. But it didn't keep credit agencies from calling the company's debt "junk."
Yesterday, Moody's joined Fitch Ratings (which had already upgraded Ford) in upgrading the company's bonds to an investment-grade rating of Baa3. Per the credit agreement, that move was sufficient to remove the lien over Ford's nameplate.
The Blue Oval is back in Dearborn again.
What's it mean to you?
So good news for Ford, you say. But what's it mean to me? Actually, it may mean quite a lot. It may mean a cheaper car for you -- and maybe a better car, too.
You see, as a general rule, the lower Ford's credit rating falls, the more interest it has to pay on its debts. And every dollar Ford has to pay its lenders is a dollar it has to add to the sticker price of its cars if it's to break even. It's a dollar it can't invest in research, development, and designing the very best cars consumers might want to buy.
With the return of its debt to investment grade, Ford should now see its borrowing costs decline, leaving it more money for improving its business, its products, and who knows -- maybe even its prices.
Hey, car dealers already use Columbus Day, the Fourth of July, and even Earth Day as excuses to inflate balloons and hold car sales. If those dates work, then getting Ford's Blue Oval out of hock is an even better reason to hold a "sale-a-bration."
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Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and General Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor.
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