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Speculation that


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credit rating would be downgraded were once again swirling in the markets Friday, but investors mostly were taking the rumors with a grain of salt.

Shares of the No. 2 U.S. automaker were down 2%, or 21 cents, at $8.45 in afternoon trading.

While analysts say there hasn't been any new development that would spark a downgrade at this time, Standard & Poor's analyst Scott Sprinzen said he is "looking closely at how performance is unfolding," adding, "we continue to have a negative outlook on the company, and we stress that it's a weak rating."

Sprinzen, whose credit rating on Ford is two notches above junk status, said that while the company has recently made efforts to restructure its operations, there are a number of issues that continue to worry him.

To start with, Ford derives a good chunk of its earnings from sport utility vehicles and pickup trucks. But profit margins from these segments are expected to deteriorate going forward, as competition heats up and production capacity rises. Meanwhile, the performance of the firm's luxury vehicles has been mixed, and Sprinzen noted that Ford's overseas operations continue to struggle.

Another cause for concern are Ford's mounting pension liabilities, which increased to $15.6 billion at the end of 2002 from $2.5 billion at the end of 2001. "The servicing of these liabilities will be a significant ongoing draw on financial resources," Sprinzen said in a Jan. 28 research note. Still, he added that the firm should have enough cash to cover these liabilities over the next few years.

Other analysts say that while Ford has recently tightened its underwriting standards, they are troubled by its heavy credit losses, which have been high by both historical and industry norms. Ford Credit's debt spreads have widened over the last two years and have often been extremely volatile.

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A spokeswoman for Ford said the rumors were started because of some concern among investors about the timing of a meeting that Ford had arranged with the ratings agencies.

"Some folks believed that the timing of these meetings signaled that something could potentially happen," she said. "In reality, we meet regularly with the ratings agencies, and to have a scheduled meeting sometime in the first quarter is normal course of business for us."

Profitability at Ford began to deteriorate in late 2001 as a result of some poor management decisions, few new product offerings and spiraling costs. At the same time, industry demand started to slow and price competition began to intensify. Still, the firm has been restructuring its operations since early 2002, and analysts say it has made progress in a number of areas.

Speculation that Ford's credit rating would be downgraded, possibly to junk status, initially began back in October after Credit Suisse First Boston raised the issue in a research note. The firm said such a move could make it more difficult for Ford's finance arm to continue leasing vehicles and would hurt the firm's competitive position in the market.

Still, most Ford watchers don't expect that to happen. Moody's currently rates Ford's credit three notches above junk status.

"There's not really been any change in their financial situation," said David Healy, an analyst at Bernstein. "They're still pretty liquid and have access to capital."

Indeed, Ford had $25.3 billion in cash at the end of 2002, and Ford Credit has bank facilities worth $34.5 billion, of which $26.3 billion was unutilized at the end of 2002.

Analysts also say that near-term debt maturities at Ford are minimal and although a substantial portion of Ford Credit's debt will mature over the next year, the firm is able to tap the asset-backed securities market for funding.

In the fourth quarter, Ford reported a net loss of $130 million, or 7 cents a share, up from a loss about $5 billion, or $2.74 a share, in 2001. Excluding charges for restructuring actions and other unusual items, Ford earned $150 million, or 8 cents a share.

"I've seen a moderate improvements in their financial situation over the last six months," Healy said.