Ford Motor Co.: No Bailout Money
January 2nd, 2009 at 6:23 pm - by admin
Last month, when the Bush administration’s decision to redirect financial bailout money to General Motors and Chrysler was performed, Ford Motor Co. announced that they would not be needing the money; questions arise now about Ford’s liquidity and how recent Treasury decisions may affect the company.
Right before Christmas, the Federal Reserve made the controversial decision to rebrand General Motors Acceptance Corporation as a bank holding company, a move which follows in the footsteps of many of the large scale consumer banks which survived the banking crisis earlier last year. Bank holding companies are subject to more regulation and oversight, but have significantly increased access to federal funds and Federal Reserve loans.
GMAC Financial Services is, in fact, owned 51 per cent by Cerberus Capital Management, a financing shop out of New York, the same group that controls Chrysler. Immediately after the injection of taxpayer cash by the U.S. Treasury, GMAC reduced their consumer interest rate on loans to zero per cent, giving them a distinct competitive advantage over the competitor - Ford Motor Co.
Such an intervention in the market causes a huge distortion; consumers who are price dependent on financing are unquestionably going to choose General Motors over Ford, simply because of a government subsidy; and as such, Ford’s sales will fall this quarter, likely to cause another “automotive industry crisis” when their failure becomes imminent.
Ford’s reluctance to take advantage of taxpayer funds should be praised, even if it was made with rational choices. No doubt the cost to General Motors in the long term for borrowing / accepting this injection of cash will be pricey; but more importantly, the inflation which will occur on the dollar as a result of all this injected money being spent and transferred around the economy is vast.
A Ford executive Friday announced a calculation of 2008 automotive industry sales at $13.5 million in light vehicles, down from just over $16 million in 2007. Sales of heavy duty vehicles and fundamentally business oriented machinery is quoted at approximately the same ratio; $13.5 million in 2008, down from about $17 million in 2007.
Friday afternoon Ford’s shares were seen to have risen approximately 7.42 per cent, now sitting at $2.46, while GM rose 14.06 per cent, closing at $3.65.
