Ford Shares Rise as Credit Rating Boosted

Ford(F) shares were rising Friday, and that was even before Standard & Poor's boosted the automaker's credit rating.

Shortly before 11 a.m. EDT, the agency said it was boosting Ford's rating to BB plus from BB minus, a result of ratification of the new four-year-contract with the United Auto Workers.

"We believe the contract will allow for continued profitability and cash generation in North America," S&P said. "Ford has a two-year track record of profits and cash flow generation in its global automotive operations, supported by strong performance in North America. We believe Ford's global automotive operations will generate at least mid-single-digit EBIT margins and positive automotive operating cash flow of at least $5 billion in 2011."

The agency said it assigned a stable outlook to Ford credit and removed the ratings from CreditWatch, where they were placed with positive implications on Sept. 29.

The upgrade came despite S&P's expectation that "as the inventories of the Japanese automakers recover, we believe some modest market share losses by many non-Japanese automakers could occur in the U.S. over the coming quarters."

In mid-morning trading, shares of Ford were up 45 cents to $12.15, their highest level since early August, while General Motors(GM) shares were up 95 cents to $23.91, a level they had reached earlier this month.

Shares of Ford and GM were rising even before the S&P release at 10:51 a.m. In fact, Ford shares were up about 5% before the release.

A key factor was Ford's statement on Thursday that the new contract will increase its annual costs by less than 1%, and that the increase will be offset by new operating efficiencies..

Additionally, many auto analysts have been saying for months that investors are not seeing the value in Ford and GM shares, both are which are benefiting from rising automoti! ve sales , pent-up demand for new vehicles and lower costs as the result of better contracts as well as improved operating models.

The auto industry's operating model for decades had been to build too many cars at too high a cost and to sell them at too many dealers. Changes forced by the Obama administration in bankruptcy, and by Ford CEO Alan Mulally outside of bankruptcy, upended that model.

On a conference call Thursday to discuss the new labor pact with analysts and reporters, Ford Chief Financial Officer Louis Booth noted that credit rating agencies were "expected to look at us again after the contract completion."

"We think this will be favorably received, the competitiveness of the settlement," said Booth, who had been asked if Ford might restore a dividend as a means of encouraging improved ratings. He said that dividend restoration is "not directly related -- we're a little way from talking about that."