At some point, Ford (NYSE: F ) has to ask itself, why bother? Why try to go it alone and not take government assistance? After all, everyone is doing it. And not just Chrysler and General Motors (NYSE: GM ) , either. Rafts of foreign car companies are also hitting up their governments these days for handouts. In this instance, Ford's more principled stand puts it at a disadvantage to its competitors.
It's not just the loan guarantees that GM and Chrysler got that initially breathed more life into them, but also the money that their financing arms received from TARP, which lets them offer low-interest loans to car buyers. GM is also lowering the credit score needed to finance one of its cars.
Similarly, Toyota (NYSE: TM ) has decided to hit up Japan's government for money, and Nissan (Nasdaq: NSANY ) is pondering the move as well. Toyota is seeking $2 billion, while Honda (NYSE: HMC ) is also pursuing an undisclosed amount. You can't call it a bailout because despite many Japanese carmakers reporting their first losses in some time, they're not in danger of going under. No, instead, they figure that, with credit markets still tight, their own finance companies can use the funds to make low-interest loans, too.
Japan is providing $5 billion of its $1 trillion reserve horde to the Japan Bank for International Cooperation so it can make loans in dollars to companies. When car sales are plummeting month-to-month -- U.S. car sales fell 41% in February -- the easy cash may allow the foreign carmakers to outlast their American rivals that are in much more dire straits. With its auditors having doubts about GM's stability as a going concern, the foreign subsidies should make Toyota and Nissan's pursuit an easier task.
The going concern note wasn't a complete surprise, since GM had suggested last week when it posted a massive $31 billion loss that its auditor might just write such a letter. But that could make things dicier for it, as lenders could demand instant repayment of their loans.
Of course, it should have been foreseen that once the U.S. started shoveling billions of dollars at domestic companies that foreign governments would do the same. Paeans to free markets just fall on deaf ears these days, no matter how much they're needed. With governments providing support to the car industry everywhere, the ultimate result may be that nobody benefits: The bankruptcies that ought to have occurred earlier may now end up costing taxpayers billions.
With Ford's sales plummeting 48%, to under 100,000 vehicles last month, I applaud them for working out their issues on their own. Even as GM seeks more assistance from European governments and its bondholders' representatives meet with President Obama's auto task force to see if it would guarantee new bonds during a restructuring, Ford is offering to exchange up to 40 percent of its debt for cash and stock in a bid to reduce its indebtedness. Ford said it expects to save $600 million in interest expense if the deal goes through.
Coupling a commitment to reorder its business without the intrusive hand of government help and with a hybrid car whose features and styling rivaling anything put out by its competitors, Ford may not only emerge from this ruinous economy a more financially stable firm, but as a carmaker worthy of consumer support.