Prior to the United Auto Workers deal on Tuesday shares of Ford were trading at $9.37. Since, shares of Ford have rallied 17.07% to $10.97, significantly out-performing the bench mark’s 5.96% gain. The stock’s recent performance is primarily a result of the deal Ford reached with the UAW. According to the initial assessment conducted by the rating agency Moody’s, “the proposed UAW contract should enable Ford to maintain its operating flexibility, fixed cost position, break-even point, and liquidity position near current levels,". Additionally, Moody’s said if the contract was ratified and if initial assessments were maintained, Ford can get an even higher rating than what is currently being considered, returning them to investment grade. An investment grade rating for Ford would substantially lower borrowing costs which has been an encumbrance on their profitability, as well as allow them to reinstate a dividend which shows they are trying to return value to shareholders.
On another note, Ford announced that September sales were up 9% from a year ago. Brand sales were up 14%, led by utilities and pickups, with sales gains of 35% and 15% respectively. Positive trends may be a sign of a broader improvement in the automotive industry and as the economy seems to be stabilizing a little bit, there are a lot of people who had been postponing buying new vehicles who are now finally coming to replace their vehicle. Ford has positioned itself well to attract these consumers and their sales reflect it.
UASBIG analyst will closely monitor both the final negotiations of the UAW contract and Moody’s review to return Ford to investment grade in the coming weeks.