Ford’s Impossible Task

The WSJ has one of those “Duh” articles this evening that suggests that Ford may face tough going against two federally funded auto manufacturers. Ya think?

I’ve written about this many times over the past month. Ford is probably a goner as well, either by dint of circumstance or because there truly is a plan for control of the auto manufacturers. I prefer to believe that the former is probably the reason but wouldn’t be at all surprised to learn that the latter is in fact the driver.

While there is a lot in the Journal about various cost advantages that GM and Chrysler will enjoy as well as the rationalization of the dealer network, the key component of the advantage that both are going to enjoy will be in the area of auto finance.

GMAC in January became a bank holding company, making it eligible for bailout funds from the Treasury and low-cost lending programs from the Fed. GMAC has since received $12.5 billion in financial aid from the government.

GM on Wednesday began issuing $3.5 billion in three-year debt backed by the federal government. This should cost GMAC about 2.2% a year.

Ford Motor Credit Co., meanwhile, recently priced a five-year bond and is paying 8%.

After getting help from the Treasury, GMAC in the beginning of the year started offering 0% loans on some GM vehicles. Ford Motor Credit finally followed suit last week.

Ford Motor Credit has applied to become an industrial bank, which would help lower borrowing costs as a federally insured lender.

The ability to offer preferential financing through GMAC is going to give GM and Chrysler an insurmountable advantage. The game is essentially over before it even begins. Ford may offer better products, it may be private and thus not impart the concern about future warranty performance but in the end, the ability of the GMAC manufacturers to offer lower monthly payments will spell the end of Ford as a privately owned company.

All of this was baked in the cake from the minute the government started down this road. Give Ford high marks for fighting a good fight but it was fixed from the get go. The only remaining question is how do the transplants compete? Will their governments pitch in to help them maintain market share and if they do, what kind of government to government response would that elicit from the U.S. You know free trade, subsidies and all of that stuff.

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