The squeaky wheel always gets the grease, even in the supposedly Darwinian US business world. The purveyors of the squeakiest four-wheeled vehicles, General Motors and Chrysler, hope for billions more in government loans, in spite of the fact Ford has secured many of the concessions from lenders and unions that the Treasury is still putting pressure on its wards to negotiate.
Ford chief Alan Mulally joined his Detroit counterparts last December in convincing Congress to stave off an industry collapse, such were his fears of the ripple effect, but he will take a more nuanced view now that demand has fallen more than anyone then imagined. Having a competitor go bankrupt could still be devastating for Ford, given the fragility of shared suppliers. But many will probably now fail anyway. The fact is that, had Chrysler gone out of business and a bankrupt GM shuttered weak brands such as Pontiac and Saturn, Ford might well have emerged from the crucible more viable, in a less saturated car market.
In late 2006, Ford was Detroit’s financial weakling. Its gutsy move to raise a cash hoard by shedding luxury brands and hocking all its assets now looks prescient. This allowed it not just to eschew federal loans but also to restructure unsecured loans this week and persuade unions to accept billions in shares in lieu of cash for their healthcare fund. This diluted shareholders, but at least this currency retains more than option value. Ford shares are up 52 per cent year to date compared with a 38 per cent drop at GM. This outperformance has left Ford’s market value seven times that of its larger rival.
Taxpayers could instead provide temporary working capital to the sector and allow Ford and GM’s healthier parts to form the nucleus of a leaner car industry. Pushing GM into Chapter 11 and allowing Fiat to pick over Chrysler’s carcass would reward, not punish, Ford – the one company that evolved to endure the crisis. Survival of the fittest indeed.
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