Earlier this week, the Congress and President Obama authorized a $787 billion borrow‐and‐spend plan to create “or preserve” 3.5 million American jobs. So, could there be a better time than now for GM and Chrysler to announce they will need billions more taxpayer dollars to avoid having to let go hundreds of thousand of workers? How likely is Washington to cut off the auto producers at this particular juncture?
It shouldn’t come as a surprise that GM and Chrysler are asking for a lot more money because, well, the warnings were issued. In fact, Bush’s decision to defy Congress and provide “loans” to GM ($9.4 billion) and Chrysler ($4 billion) back in December wasn’t even intended as a cure all. It was designed to buy time for the producers to come up with detailed viability plans for their next bite at the apple. And as expected, central to both viability plans, which were unveiled yesterday, is more taxpayer money. At the moment, a combined $22 billion is being requested, which would bring the total doled out to just under $40 billion.
Just as stunning as the implied blackmail (give us money or we’ll give you idled workers) being perpetrated by GM and Chrysler is the continued silence of Ford. There is probably no company in America that stands to lose more from taxpayer subsidization of GM and Chrysler. (The foreign nameplate producers in the United States are also penalized by subsidies to GM and Chrysler, but in the current environment it is probably wiser for them to bite their tongues. And Ford is more of a direct competitor with the other Detroit producers than are the foreign nameplates, anyway.)
If GM and Chrysler were no longer producing, Ford would be able to pick up market share and productive assets from the others, and ultimately improve its own long term prospects. By keeping GM and Chrysler afloat with subsidies, the government is implicitly taxing Ford. Ford is facing unfair, government‐subsidized competition, of the sort alleged against foreign producers all the time. But in this case, the subsidies are real, direct, quantifiable, and large. Ford is relatively healthy now, but continued subsidization of the others could well drive Ford to the trough, too.
When companies are losing billions per month with sales revenues continuing to shrink, it doesn’t require a finance degree to discern an imminent cash flow crisis. Even if the demand environment were picking up, these companies would still be losing money because their cost structures are impossibly inefficient. GM and Chrysler have nibbled around the edges to cut costs. Brands are being sold off or scrapped. Factories are being closed. Dealership arrangements are being terminated. But none of those changes addresses the big issues, particularly for GM: an unmanageable capital structure (its debt burden is too heavy), unmanageable legacy costs (paying for lavish promises made in the past), and uncompetitive operating costs (including still much higher than industry‐average compensation).
Reorganization or liquidation under one of the bankruptcy chapters will condense the timetable for resolving this problem, will save taxpayer money, and very importantly, will speed the return to stability in the automobile market worldwide. It’s time for Ford to speak out on behalf of this solution too.
