Ah, the good old days, back when the only automotive bailout on the table consisted of a paltry $25 billion federal loan program to retool old factories (a.k.a. Chrysler, Ford and GM plants) to build fuel efficient cars. At the end of last year, when the NSFW hit the fan, President Bush tried to divert those Department of Energy (DOE) funds to Chrysler and GM, as an end run around an recalcitrant Congress. The DOE said, hey, don’t rush me babe. In the end, Bush shoved aside Congressional and bureacratic dithering—I mean, due diligence, ignored the original intent of the Troubled Asset Relief Program, sent $17.4 billion worth of TARP booty to the two zombie automakers and pissed off to Texas. Since that fateful day, GM alone has blown through the 20 bil barrier. So, what of that $25 billion DOE fund? Well, Chrysler and GM can’t have it; they failed the loan requirement’s viability test. And how. Which leaves. . . Ford. The Detroit Free Press [almost] reports that The Blue Oval Boyz have applied for $11 billion from the federal fund. Will this Uncle Sam suckle punt Ford from the Motown moral high ground, and ding Dearborn’s dead cat bounce? Of course not! It’s a loan.
But do you think that the DOE loan for Ford is going to change their likelihood as most viable candidate for ‘Last Man Standing’? I’m thinking not at this point. Though if the Obama-Team-Go-Task-Force! decides that they also now head up Ford (in addition to GM and Chrysler) because of this, then I would add a much greater dose of doom Ford.
Ford has said they will be forced to go C11 when GM does. Ford is in no better shape than GM or Chrysler as witnessed by their 40% drop in sales last month…which was WORSE than Chrysler and only slightly better than GM.
Ford WILL take Govt. money and they will be forced to go C11 at some point.
DrBiggly :
Though if the Obama-Team-Go-Task-Force! decides that they also now head up Ford (in addition to GM and Chrysler) because of this, then I would add a much greater dose of doom Ford.
uh… no. this one doesn’t have the same strings attached so i don’t see the automotive task force getting involved. ford’s not that desperate. this money is supposed to go towards retooling for things like hybrids. like i’ve been saying… ford will be the last man standing and will eventually reap the benefits and recover.
P71_CrownVic :
Ford WILL take Govt. money and they will be forced to go C11 at some point.
they may have to take bailout money but they won’t declare c11 no matter what. the ford family controls the company and they lose everything in c11. for ford, it’s survive or c7 only.
+1 postjosh!
The DOE fund was set up well over a year ago, and it is not the same thing as a bail out. If the government is going to continue to impose fuel efficiency standards on the manufacturers in an environment where, in general, their customers didn’t want those products (except for about half of last year), then the government needs to support some of the capital investments needed.
Of course, just raising fuel taxes would solve this problem by raising demand for more efficient products, thereby making capital outlay for such retooling a profitable enterprise, but that would make too much sense.
I do agree with the DOE’s decision to withhold funds from companies who are not likely to be able to bring about any real results with such a loan.At this time, only Ford seems to have the capacity to put these funds to good use. I wouldn’t be against such funds being made available to other manufacturers for plants here in the US as well.
postjosh is right. Accepting the retooling loan is *not* the same thing as a bailout here. Ford is certainly not perfect, but they are in a completely different category than GM and Chrysler. They’d be foolish not to take the DOE loans. At least in Ford’s case, the chance that the loans are repaid are much greater than zero. That’s a good deal more than can be said for either GM or Chrysler.
It’s a real, real stretch to equate this with a bailout.
While I agree with Postjosh, I have been pondering one thing… the fate of the UAW. If Chrysler and GM go Chapter 11, Ford becomes the last home of the unrepentant and unreformed UAW.
The Chrysler and GM chapters of UAW may be forced to make some (modest, but still some) concessions.
However, if Ford doesn’t follow the same bankruptcy path as the others, the UAW will not HAVE to make any changes…
This would(IMHO) leave Ford at a disadvantage.
Would the UAW make concessions for Ford to keep them equal with the “Dead Detroit Two”?
Or will they dig deeper into their bunkers, and hope that the atomic blast which swept away the rest of the American car industry will just blow over?
No doubt Ford played it the smartest so far with respect to finances. However, there are huge hurdles to come.
Chrysler just announced the shutdown of plants in Canada because of lack of parts…mercifully, I might add. Should they really be building more cars when they can’t sell the ones they’ve got?
Ford will end up in the same shoes when many of it’s suppliers fail.
It is going to get ugly when we try to restart this U.S. auto industry in a few years. I’m afraid it will have a serious case of lot rot.
Yes, Ford is one of over 70 companies (including Nissan, Tesla, …) that have applied for the DOE loan program as was reported months ago.
“Yes, Ford is one of over 70 companies (including Nissan, Tesla, …)”
Nissan? Why, that’s unpossible! /snark
However, if Ford doesn’t follow the same bankruptcy path as the others, the UAW will not HAVE to make any changes…
This would(IMHO) leave Ford at a disadvantage.
Some of you folks are really fixated on the union, when the numbers don’t justify the concern.
The labor costs are a modest part of car production. A car is made up of thousands of parts, many of which are made of expensive commodities. Car manufacturing is more similar to making airplanes than to making shoes; it’s the materials costs that are the greatest burden, not the wages, benefits or pensions.
Ford has more fundamental issues to busy itself with. In North America, its main issues are this:
-Can it use the Fusion to take sales from Toyota and Honda, and to build the brand so that average consumers associate the Ford brand with a good quality car (as opposed to truck)?
-Can it use the F-150 to take truck sales from the other Detroiters, and to keep the Tundra at bay?
-Will it be able to use the Fiesta and Focus to capture younger buyers and move them into the Ford family?
The US car market is mature. That requires that a company that isn’t just a small niche player must take sales away from its competition if it is to prosper.
Here’s the key to success: Ford must take sales from Toyota and Honda. That isn’t an option, that is mandatory. That should be its most important mission.
Meanwhile, Ford is using NAFTA to its advantage, building cars in Mexico. The UAW is dead meat; you’re battling ghosts, when the real problem of earning conquest sales is what matters most.
PCH
I’d argue that the union #s are more important than they look because of the effect it has on the small car market.
If it costs $1500 more for Ford to make a car vs. Toyota, that’s not a big deal on a F-150. It is a big deal on a Focus. CAFE makes them need to sell lots and lots of small cars to offset their bigger stuff, and the labor costs make sure they can’t sell lots of class competitive cars because they have to cut 15% off of the cars manufacturing costs to MATCH Toyota’s cost. And who will buy a car that has 15% less quality for the same price? So they have to go cheaper (which means less quality) to make a price case for buying the vehicle.
Flooding the market with super cheap POS to make their CAFE quotas is a big part of why the domestic’s reputation has suffered. It’s young people who are mostly driving those things, and driving a penalty box with quality issues will help drive people out of the Ford Family.
So that’s why labor costs are a bigger issue than you’d think.
It is my understanding that the latest contract has brought about parity between the domestics and the transplants on labor costs.
I wouldn’t count on a bankruptcy proceeding automatically resulting in a cost advantage. The Delphi saga has been dragging on for years…
P71_CrownVic :
April 7th, 2009 at 9:14 am
Ford has said they will be forced to go C11 when GM does. Ford is in no better shape than GM or Chrysler as witnessed by their 40% drop in sales last month…which was WORSE than Chrysler and only slightly better than GM.
———————————————
That’s a lie.
Ford is in better shape than GM.
Ford sale drop wouldn’t be as steep (and GM’s drop would have been steeper), if GM didn’t have that TARP money as rebates.
wsn, I think P_71 had a bad experience with either an exploding Pinto or a Firestone-equipped Explorer.
Just a little fact check on how the first auto bailout came to be, from an AFP story last November:
“Senate Majority leader Harry Reid hit out at Treasury Secretary Henry Paulson for refusing to adapt the huge [TARP] bailout to aid the auto industry, on which millions of jobs depend.
‘All it would take is one stroke of a pen and that problem would be solved,’ Mr Reid said, as he opened the Senate lame duck session.
‘We are seeing a potential meltdown in the auto industry, with consequences that could directly impact millions of American workers and cause further devastation to our economy.’
But the White House got in a preemptive strike before lawmakers reported for work saying the special rescue funds for banks were not the answer, calling on Congress to adapt an existing US$25 billion auto industry loan program.
‘The administration does not want US automakers to fail, and in fact we support assistance to automakers,’ Mr Bush’s press secretary Dana Perino said.
But ‘we believe this assistance should come from the program created by Congress that was specifically designed to assist the automakers – from the $25 billion Department of Energy loan program,’ she added.
‘This is the appropriate funding to use for automakers rather than seeking an additional US$25 billion from the Tarp program’….
‘The Tarp programme was never intended by Congress to assist automakers or other sectors of the economy – it was solely intended to deal with what is an ongoing credit crisis in our financial sector.’
Despite the political posturing, it seemed unlikely the Democratic leadership would muster sufficient votes to press the bailout through the Senate.”
So the Bush administration stuck to principle until it was clear new funds or the Greenies’ post of money wasn’t going to be available. Then they tapped TARP, like top Democrats (including Obama) had been urging. Just another instance when fiscal-conservative Repub’s were disappointed by their president. But it’s easy to imagine how the media would have treated Bush if GM filed for bankruptcy on his watch.
If it costs $1500 more for Ford to make a car vs. Toyota
It doesn’t. Rick Wagoner liked to say that, I know, but if you look at the numbers, you can see that most of those obligations that he complained about weren’t actually being funded.
It isn’t cost, it’s revenue. If the Detroit automaker has to slam $2,000 in additional incentives on the hood to sell the car, and then still can’t sell as many of them, then that’s the difference between profit and loss. Don’t just repeat the Wagoner line; follow the money.
50merc–
The Senate Republicans voted against the auto bailout because they knew Bush would bail them out, anyway, so they could appeal to their base without having to face the consequences of a GM or Chrysler bankruptcy. That’s the advantage of being the minority.
Contrary to what some say,Ford will survive.
There is one poster here who should really change his user name.
duker, well said
thanks for the smile
Ford is trying harder it seems than Chryco and GovMotors, give them credit for making the tough choices well before it Detroit brethren.
Most automakers sales were down 33+% for March, even Toyota and Honda are off large vs March 08, 30+% look it up. In Canada March 2009 average decline was 22% from ’08 entire indusrty. Ford was only down 15%, GM, Chryco, Honda, Toyota all down the average or worse. The market sucks right now. The Japanese goverment has loan programs to assist the finance arms of their manufacturers in these dire times. “Bail out” or “Subsidy” or “Loan” the governement is involved none the less. When this period of contraction is the auto landscape will have changed. Betting Ford and baby GM are left, Fiatsler what odds would it take to place a bet?
@geeber – a quick comment about union/non-union wage parity. I don’t know if they have suceeded in wage parity yet, but even if they have, the deck is still way stacked in the favor of the union. The problem is not just wages but work rules. In non-union plants you can save a ton by having people do multiple jobs. You can’t do that in a union plant.
BDB:
“The Senate Republicans voted against the auto bailout because they knew Bush would bail them out, anyway, so they could appeal to their base without having to face the consequences of a GM or Chrysler bankruptcy. That’s the advantage of being the minority.”
After listening to Corker and Shelby during the bailout hearings I don’t think that was the case, at least for them. They really did not want to give the money. A majority of Republicans voted against TARP the first time until the Bush Admin strong armed them into passing it.
Miked- I have worked in a union assembly plant for fourteen years. Throughout my time on the line almost all of the plants workforce have worked multiple jobs.
Miked: I believe that the latest contract heavily revises the work rules, too.
“That’s a lie.
Ford is in better shape than GM.
Ford sale drop wouldn’t be as steep (and GM’s drop would have been steeper), if GM didn’t have that TARP money as rebates.”
How is that a lie?
The sales numbers sure back up what I said…and Ford has testified to CONGRESS that if GM goes C11, they will be forced to as well.
Or are you saying Ford is guilty of perjury?
If it costs $1500 more for Ford to make a car vs. Toyota, that’s not a big deal on a F-150. It is a big deal on a Focus. CAFE makes them need to sell lots and lots of small cars to offset their bigger stuff, and the labor costs make sure they can’t sell lots of class competitive cars because they have to cut 15% off of the cars manufacturing costs to MATCH Toyota’s cost. And who will buy a car that has 15% less quality for the same price? So they have to go cheaper (which means less quality) to make a price case for buying the vehicle.
Focus – starting MSRP $15,520
Civic – starting MSRP $15,305
Honda has a $215 PRICE advantage. Note, not COST advantage, but price advantage. MSRP. People shop on price, not on cost.
But, Ford offers $2000 retail customer cash. And, $500 Ford Credit Retail Bonus Customer Cash, so Ford is knocking $2500 off it’s profits just to move the metal.
Honda offers special financing, but no money on the hood.
Now of course, no one is going to pay MSRP, but we can use that as the starting point for comparison.
So, Ford has a $2285 PRICE advantage. Even so, Honda will sell more Civics than Ford will sell Foci.
If your $1500 figure is correct, then we add that to the 2500 they put on the hood, and we see that Ford makes $4000 less on a Focus than Honda makes on a Civic.
By far the biggest loss for Ford is not the extra $1500 in cost of production, due to union labor – the biggest problem is they need to put $2500 on the hood to get a Focus off the lot. If you test drive both cars, there is no mystery why Ford has to do that. IMO Focus is not a bad car at all. In fact, it’s pretty good. But not even in the ballpark with Civic.
It’s obvious Ford could make another $2500 per car if they just didn’t have to bribe people to buy them. If they could reach this “no incentives necessary” point for anything under $2500 they’d come out ahead.
At no time does Ford have to match anyone else on cost. Only price. And they are very close on price. After rebates Ford is way way better on price, and yet will move fewer cars.
I don’t agree that Ford can’t afford to sell class competitive cars. In fact, I would argue they cannot afford not to. If you’re the high cost producer it makes no sense at all to try to be the low price seller.
If your $1500 figure is correct…
That’s the problem. People quote that figure because Wagoner, Lutz, and the other GM’ers claimed it to be true.
But it isn’t. Here’s an exercise for everyone — take GM’s 2008 financial statement, and review the statement of cash flows for the cash that went to funding the pensions and the VEBA, netting it for the cash that was taken out. Then, divide that figure by the number of cars sold by GM during the same period.
Do the math, and you will see that this equates to about $100 per car. If you want to take a leap, and attribute the entire amount to only cars sold in North America, and it’s about $200 per car.
GM has massive liabilities…but it isn’t paying them. They spend lots of time talking about theoretical costs that are eventually negotiated away or just ignored.
They do it to appeal to anti-union sentiment, knowing that 99% of the people hearing it won’t actually look at the statements to verify its accuracy.
Now, take it a step further. Compare GM’s revenues from vehicle sales with Toyota’s, and you can see that the gap there is more than $3,000 per vehicle in Toyota’s favor. Since we all know about the incentives used to move domestic cars, this shouldn’t come as a surprise.
So we have management inflating a $100 cost into a $1500 cost, while ignoring a revenue disparity that is more than double of this widely-quoted-but-wildly-inaccurate $1,500 figure. I hope that we can we all see that a $3,000+ revenue hole is a hell of a lot more important than a $100 pension obligation…
Considering Ford’s inferior car lineup it is amazing they lasted this long without a bailout. Where is Ford’s Corvette, CTS, and Malibu?
“Considering Ford’s inferior car lineup it is amazing they lasted this long without a bailout. Where is Ford’s Corvette, CTS, and Malibu?”
What???? You are joking, right? Call me crazy but I believe GM sells the above mentioned vehicles and at last check it didn’t seem things were going all that well for them.
If GM goes into bankruptcy, then I believe that Ford will probably have to also ask for bailout money. The reason is that the parts suppliers who also supply GM and the others, will then also have to go bankrupt, which in turn will also impact Ford. Survival for Ford means making the types of cars they make in Europe. If Ford can’t survive here, then they will make a stand in Europe, where their cars are highly rated by the famously fastidious Europeans.
Also, how come NO ONE ever talks about the unfairness of our supposed trading partners. Yes, I’m speaking about the Japanese, Koreans, and eventually, the Chinese. These countries use many tricks and made up rules to keep our vehicles out of their countries, but yet, feel it is their god given right to export their cars to ours. And if we don’t do anything about it, then the Chinese will ban our cars from their market also, while they pretend to dump their cars here.
Where is Ford’s Corvette, CTS, and Malibu?
Corvettes sell….very few overall. Nice halo car though, as is the CTS. Ford has no answer for either.
Conversely, where’s anyone else’s F150, Fusion hybrid, Fiesta? The Fusion and the new Taurus can handle the Malibu….which isn’t selling all that well.
Doesn’t the Chevrolet Silverado/GMC Sierra twins out sell the F150? The F150 is supposedly the “best selling pickup” but you would be hard pressed to call the GM twins different trucks.
GM overall has better product than Ford. Ford has a business advantage, fewer brands. GM should have merged Saturn and Pontiac (Pontiac-Saturn) a long time ago. More dealers selling Saturn would have meant more Saturn sales. They would have saved money by not having to develop Pontiac small cars or Saturn mid size cars. They should have merged Cadillac and Chevrolet (Cadillac-Chevrolet dealers). More dealers selling Cadillacs would have boosted Cadillac sales.
Chapter 11 helped the airlines, it will help GM. If Ford stays out while GM files, then Ford will be doomed. So the Ford family is willing to kill the business rather than have someone else run it.