Moody’s said today that the ratification by UAW workers at General Motors (GM) and Ford (F) of new four-year labor contracts removes a major hurdle to a ratings upgrade, signalling that upgrades from their current Ba2 ratings (two steps below investment grade) could be imminent. Both Fitch and Standard & Poor’s have raised their ratings on the companies in the past month.
Labor costs under the new deal will rise very gradually, essentially preserving the companies’ current cost structure, Moody’s says.
“Ford and GM estimate that the contracts will increase hourly compensation costs by 1% or less over the lives of the contracts, which will have little impact on their current breakeven levels. Both companies” unit shipments comfortably exceeded our estimated breakeven levels during the 12 months ended in June � by 30% at GM and more than 40% at Ford,” Moody’s said.
Ratings upgrades should lower the companies’ credit costs and could be the catalyst that convinces Ford to add a dividend.
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