Ford in a Bind

Manny, Moe and Jack

All the recent talk about Ford has been glowing and positive: how much better its product lineup is than GM’s or Chrysler’s, how smart it was not to take the bailout, how much better positioned it is for the future. Well, I wonder. Ford does have an edge in product and clearly has avoided the stigma of bankruptcy.

On the other counts, there are big uncertainties looming. The Detroit News interviewed Ford’s Treasurer, Neil Schloss, who noted that the company was “at a cost disadvantage” in raising capital for its lending unit, Ford Credit Group. That is, since the government granted GMAC, GM’s lending arm, bank status, it can borrow money—and hence finance car purchases—much more cheaply than Ford: 2.2 percent versus 8 percent on recent debt transactions.

Well, that’s a very large disadvantage. Bloomberg had another way of putting it: “In recent competing bond offerings, Ford paid $107.5 million more than GMAC for every $1 billion it borrowed.” That makes for a very un-level playing field. Yet Treasurer Schloss maintains that having an in-house finance company can offset this.

There are significant benefits from an operating perspective to being able to have the credit guys and the marketing and sales guys working right next to each other and agreeing on the right way to approach the market and what the right incentive levels are. There are also benefits associated with the consumer and how we treat them.

As a former marketing person, I must say I don’t know what the hell he’s talking about. You have to have the marketing and finance guys under one roof? Why? Ford’s phones don’t work? What consumer benefits is he referring to?

The conclusion to me is that Ford made a big mistake in not taking government financing, even though it is the healthiest, right now, of the Big Three. Or should we call it the Big One? But look what has to happen:

• Ford must bear the immense cost of restructuring on its own, and it will take far longer than the GM and Chrysler rebuilds.

• With bankruptcy, GM and Chrysler will eliminate over 2,000 dealers with the stroke of a pen; Ford will be stuck with more than 3,700 dealers who are bound by state franchises.

• Finally, Ford’s debt burden is over $30 billion long-term, which isn’t going away any time soon. GM and Chrysler will be getting some $62 billion in government investment.

Looking at the financial side, I don’t think the company has much to cheer about.

Can Ford make it out of this hole on product alone? Give us your thoughts.

—jgoods

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