Ford's unrewarded virtue
By cleaning up its two U.S. rivals, Uncle Sam has put the automaker at a competitive disadvantage.
(breakingviews.com) -- With General Motors' Chapter 11 filing, Ford Motor stands alone among Detroit's Big Three in dodging a shareholder-crushing government bailout. If the car market continues to slide, that may be a short-lived accolade. If not, it's a testament to the carmaker's hard work, smart financial planning and competent management.
So what's it get for its virtue? So far, not much. It's nice that President Barack Obama gave Ford's products a plug and chief Alan Mulally a slap on the back when announcing new emissions standards. But the competitive advantage Uncle Sam's life-support package gives GM -- and the billions injected into Chrysler -- must worry Ford (F, Fortune 500).
When its two domestic rivals emerge from swift trips through the Chapter 11 car wash, they'll have cleaned up their legacy cost problems and scrunched down their dealer networks in ways Ford, outside bankruptcy, cannot. And as GM's 72.5% shareholder, Uncle Sam has an incentive -- perhaps even a fiduciary obligation -- to favor GM.
To dispel that notion, the government would have to act swiftly to level the playing field. But there's not much it can do. The White House could flex some political muscle to stimulate demand for cars by expediting the "Cars for Clunkers" bill now slowly wending its way through Congress and speeding up the arrival of cheap Department of Energy loans to help develop fuel-efficient vehicles.
And it should continue its efforts to bolster the funding markets which Ford Motor Credit depends on to make loans to buyers - which may mean extending the Federal Reserve's Commercial Paper Funding Facility and its Tern Asset-Backed Securities Loan Facility designed to bolster the securitization market.
Both measures would of course help all carmakers. But if Ford is smart it will exploit its status as the only financial virtuous US carmaker to snaffle up greater market share. That may mean pulling fewer punches in its advertising.
There is one thing the government can do to specifically help Ford: fast-track approval for its finance unit's long-standing application to open an Industrial Loan Corporation. That would allow Ford Motor Credit to collect deposits and lower its overall funding costs -- matching the advantage Chrysler's and GM's financing partner GMAC has now that it is becoming a bank holding company -- whose solvency is entirely dependent on the US government.
Aside from that Ford's on its own. The good news is that executives have already demonstrated superior restructuring savvy outside of bankruptcy. Combined with what little help the government can give, Mulally may be confident enough to keep Ford competitive without resorting to the bankruptcy court. If not, all the past few years' virtuous diligence will be for naught.