Breaking Views

Ford's unrewarded virtue

By cleaning up its two U.S. rivals, Uncle Sam has put the automaker at a competitive disadvantage.

By Rob Cox and Antony Currie, breakingviews.com

Find your next Car


(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. To top of page

Company Price Change % Change
Qualcomm Inc 68.90 -8.86 -11.39%
Advanced Micro Devic... 27.17 -0.18 -0.66%
General Electric Co 10.02 0.06 0.65%
Target Corp 78.59 6.63 9.21%
Ford Motor Co 10.13 -0.11 -1.07%
Data as of 10:34am ET
Index Last Change % Change
Dow 25,800.71 -76.62 -0.30%
Nasdaq 7,764.54 -21.18 -0.27%
S&P 500 2,857.32 -7.04 -0.25%
Treasuries 2.40 -0.03 -1.15%
Data as of 10:49am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.