Harry Reid – Auto Bailout Probably Saved Ford! – No But It Will Make Ford More Profitable!

Harry Reid is a gift that keeps on giving.      

Sharon Angle should just make commercials with “Reidisms”.      

Today he said;  (For all of you Palin haters, I know Reidism is not a real word)    

 

   

 

Sharron Angle at home in Nevada

“Isn’t it a good thing today in America that we have an automobile manufacturing sector?  If it had been up to them [Republicans], General Motors would be gone.   

 If it were up to them [Republicans], Ford Motor Company would probably be gone.   

 Chrysler definitely would be gone.”   

     

In four short sentences, Reid only had one of the four correct.  So he was 25% right…    

  • 1st Sentence:  He got the first sentence right, yes; it is a good thing that we have an automobile manufacturing sector.
  • 2nd Sentence:  General Motors would not be gone without the bailout, they would have filed a real Chapter 11 and allowed Federal Bankruptcy trustees to restructure the company.  This would have allowed GM to use a constitutionally correct avenue, our court system, to bail themselves out through cooperation of the stockholders, the creditors, the unions, and the employees.  They would have emerged as a stronger and more viable company without any government entanglements, but that (government ownership) was the goal.
  • 3rd Sentence: Ford Motors is already the big winner with the taxpayer (not government) bail out of GM and Chrysler.  Ford has steadily posted a $2.7 billion dollar profit in 2009 (most profitable year since 2005) and is projected to post a $3.57 billion dollar profit in 2010.  General Motors in 2009 posted a $4.3 billion dollar Loss and managed a $900 million dollar profit in Q1-2010.  This is after receiving $50.7 billion dollars from you the taxpayer.  Assume for a second that GM banks the $50.7B and received 5% interest from let’s say T-Bills.  They would have netted $2.5B!  Why make Cars? 
  • 4th Sentence:  The forth sentence stating the Chrysler would definitely be gone is certainly not fact based.  If Chrysler had gone into a Chapter 11 bankruptcy and been allowed to restructure, it would have allowed them to renegotiate with their creditors and the unions.  The end result would most likely have been a company that would have been more attractive to an acquisition by a Fiat or other manufacturer.  There is absolutely no evidence that Chrysler would have been worse off without the $6.6B bail out.

 

Why will Ford emerge stronger than the two other car companies?    

#1-Federal Government Management of GM:  First, Ford is not under the direct control of the Federal Government.  I am sure that Ford hopes that the Federal Government applies the same solid management practices to GM as it does to the Post Office.  Ford does have to adhere to the nutty regulations of the auto industry, include the CAFÉ standards, but they won’t have to deal with an imposed CEO who admittedly knows little about the auto industry nor deal with little Timmy Geithner snooping around their operations every day.     

#2-GM Management Failure Perception:  Second, GM and Chrysler still suffer from the stigma of a public display of mismanagement that does not give consumers a lot of confidence in the corporate image of these companies that translates into buyer reluctance.  Buying a car is the 1st or 2nd largest purchase for most consumers.  They want to buy from someone they can trust.  The management presence of the Federal Government is not necessarily an inspiring factor.    

#3-Will the GM IPO Fail:  Third, Ford may benefit from an inability of the government to extricate itself from GM.  The possibility of GM attracting institutional investors with their upcoming IPO is probably a pipe dream.  The Government forced GM’s creditors and the GM stockholders to take a back seat to the UAW and the government’s financial position within GM.  What is to keep the government from doing the same thing again if GM cannot turn around their operations?  The SEC should investigate any Wall Street Firm who sets the IPO for GM as a “buy” let alone a mutual fund buying the stock as an investment.  If the IPO is not successful, then the government will become further entrenched and it will THINK it needs to do more to manage GM!  (Need to send those financial wizards, old Barney (Frank) and Chrissie (Dodd) to the rescue.  Dodd’s retiring, maybe he can take over as CEO?)     

Risks Ford Should Watch Out For:    

High Risk for Ford-GM is owned by the Government:  The highest risk of failures for Ford is the fact that their largest domestic competitor is owned by the federal government and that the UAW has a ownership/management stake within GM.  The former risk could be manifested by increased safety, environmental, and other federal regulators performing undo audits and reviews of Ford intended solely to harass the company and to force it to diffuse its resources.     

If you do not think that the fact that the government owns GM is a life threatening competitive issue, ask Toyota.  Toyota was taken to the woodshed by one government agency after the other for a problem that ended up being mostly “user error” or fabricated.  The loss in market share helped all of the domestic auto makers at Toyota’s expense, literally.  I would say that the congressional hearings were a joke but that would be making a redundant point.  The dems pulled out all of stops to make sure that Toyota, the #1 car manufacturer in 2009, took a big hit in sales.  Fortunately for Toyota, the majority of its customers are very satisfied with their product and the Toyota service policies.    

High Risk for Ford-the UAW owns part of GM:  The second risk may be manifested by a prolonged strike by the UAW the next time Ford’s contract is up.  A prolonged shut down of Ford would benefit who?  Oh yea, the federal government’s GM/the UAW’s stake in GM.  The Ford workers who are on strike would probably be compensated at their normal salary rates until Ford is forced to accept a crippling contract or is driven from the market or at least financially damaged.   The UAW has given GM (i.e., itself) assurances that it will not strike against GM (i.e., itself) until at least 2015.  GEE, isn’t that nice of them!  Did they give Ford the same assurance, NOPE!  If I were Ford, I would be talking to Lloyds of London to see if I could get a strike insurance policy.  It may be money well spent.    

Reid the Prophet:    

Reid may have been somewhat prophetic in the short term that the bailout of GM and Chrysler may have inadvertently helped Ford.  His point that “Ford Motor Company would probably be gone” is absurd on its face.  Ford had done its own restructuring years ahead of the financial crisis so Ford only had to deal with a slowdown in consumer spending and not a retooling of its financial obligations, product line, or internal structure.  Ford’s vision of creating product lines that are “global” designs that require no major modifications to be sold on the global market (except maybe California) is spot on.  Their somewhat quiet push into the hybrid market has been more than modestly successful.  And finally their brand loyalty remains among the highest in the industry.     

BUT, the domestic political threat by the administration to protect GM’s interest is present as is the UAW potential crippling strike scenario that would benefit GM.  Both of these threats would allow the government to include Ford in portfolio and allow the government to almost completely dominate the domestic and much of the global auto production.  This is a scary situation if you are on the Ford board of directors.    

The Bush Legacy:    

Finally, in deference to my left leaning friends, I would like to take this opportunity to take a verbal shot at George W. Bush.  It is hard to believe that a republican president actually bought into the idea of bailing out GM.  Bush set the stage for Obama to completely take over two of the three car companies and to literally give the UAW control of these companies.  For this, and the rest of TARP, I will never forgive that president or the republicans in congress that followed him.     

RD Pierini  Update 7/26/2010: 

Old Harry (Reid) helped Ford Motor Credit and other NON Bailout Companies even more with the “Financial Reform” bill.  

Ford Motor Credit had to work with the SEC to get them to approve a workaround the new Financial Reform law so Ford could sell $1.082B in Bonds.  According to Nasdaq.com, in their article titled, “UPDATE:Ford Motor Credit Advised SEC On ABS (asset backed securities) Market Reprieve”, 7/26/2010, “Ford Motor Credit Company worked with the SEC to find an approach that temporarily resolves this industry issue,” a Ford Motor Credit spokeswoman wrote in an email to Dow Jones Newswires. “Clearly, the SEC recognizes the importance of the public ABS markets, and we are glad the staff is taking temporary measures to ensure public markets continue to be available by establishing a transitional period through Jan. 24, 2011.”  

Just wonder how may more “bugs” are in the bill and how many more jobs will be not be created in a timely manner due to these kinds of delays…  I am sure Barney and Chris will fix everything…

Read more: http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201007261043dowjonesdjonline000190&title=updateford-motor-credit-advised-sec-on-abs-market-reprieve#ixzz0upAtv6EQ

References on the 1979 Chrysler Bailout    

Time Magazine: 20 August 1979    

Congress passed the bill 21 December 1979    

References on TARP    

http://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008    

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