We’ve all heard farmers remark that they don’t believe in subsidies but are forced to play the game because the neighbors do. As the only Detroit-based auto company to forego government assistance, Ford Motor Company may end up testing that theory.
It would seem Ford’s refusal to take federal dollars would put it in the driver’s seat, and the firm has been gaining market share as a result. But Ford's situation is similar to the 95% of U.S. homeowners who continue to make their mortgage payments every month, while the other 5% benefit from government assistance.
It appears that both GM and Chrysler will emerge from government restructuring with significantly reduced debt and the UAW union positioned as majority owner. Ford, on the other hand, is still obligated to pay the debt it owes. Thus, the firm who did it right may end up being the one placed at a competitive disadvantage.
Industry experts say Ford has done a wonderful job of restructuring its lineup, with its reinvented Taurus model expected to be a major hit. Ford also has the best hybrid model on the market. Still, all motor companies are hurting (Ford lost $1.9 billion in the first quarter).
Ford invested billions of dollars to revamp its operations and position itself for the future, and seemingly made much better management decisions than its competitors. Unfortunately, not needing a bailout may be the worst decision of all.
GM is asking for 90% of its $27 billion in unsecured debt to be wiped off the books, and the firm will likely head into bankruptcy to accomplish that. The difference is that Ford’s debt is secured. Chrysler’s debt was secured as well, but it appears the Obama administration is backing a bankruptcy plan that would hammer the creditors instead of Chrysler.
We’re now living in an economic environment where prudence and success are punished and failure and foolishness are rewarded. I probably can’t afford a new Ford truck, but I have to admit I’m tempted to go out and buy one. It seems like the American thing to do.