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Ford May Be Last Man Standing

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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.

Nissan Motor Co. is a Motley Fool Global Gains pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

Read/Post Comments (9) | Recommend This Article (34)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 06, 2009, at 1:28 PM, belseware wrote:

    "Ford may not only emerge from this ruinous economy a more financially stable firm, but as a carmaker worthy of consumer support." -- a logical assessment, considering the prescient moves they've made, and an appropriate outcome. But when was the last time you saw the good guy finish first? What faith do you have in the American public (as an organism) at this point?

    I encourage everyone who cares about America and free enterprise to check out Ford. (disclosure: Ford geek)

  • Report this Comment On March 06, 2009, at 1:48 PM, Jhousel wrote:

    I agree. The new Ford Focus Hybrid looks like a great car to take on the Camry and Accord Hybrids. I would buy one today if they offered an AWD model.

    As such, I am waiting for the 2010 SHO Taurus AWD in June. I can't wait!

    I firmly believe that Ford will make it an eventually the American consumer will recognize the new quality of their cars.

  • Report this Comment On March 06, 2009, at 3:12 PM, pondee619 wrote:

    IF, Ford is the last man standing, AND it does remain solvent AND it stays out of bankruptcy, AND it remains AND continues as a going concern, THEN aren't the preferreds (F-S) the best way to invest. If all the IFs above come true, they have to pay the dividend and will end up, at maturity, being redeemed at $50.00 per plus all accrued and unpaid dividends. True the dividend has been deferred, but it must be paid sometime, no later than maturity.

    Are the preferreds a good gamble on FORD staying out of bankruptcy and being the LAST MAN STANDING?

    Thank you for your kind comments.

  • Report this Comment On March 06, 2009, at 3:42 PM, gniddik wrote:

    It amazes me the folks that this website gets to write their columns. The proper terminology is "going concern" - an accounting term to describe the financial viability of a company.

  • Report this Comment On March 06, 2009, at 3:46 PM, Milligram46 wrote:

    If GM or Chrysler goes, the other follows within 30 days. The parts suppliers get crushed and start to go under, Ford and the North American operations of VW, BMW, Toyota, Nissan and Honda have the same dependencies. They are dramatically and negatively impacted.

    When you look at the cost of DIP financing, that even GMs own auditors say that GM would probably liquidate if they went BK, so no recovery of DIP. The government has said in managaged BK theypick up the warranty costs, at taxpayer expense, no recovery. The pension funds get funded at tax payer expense, up to 40%. You're looking at potentially a 5% hit to GDP, and up to two million who lose their jobs, not just in manufacturing and operation but transport, dealerships, financing and lending (commercial, floor, and consumer), parts suppliers, distribution centers, shipping and receiving.

    Some of these hidden impacts are going on right now. If you own a Saab in Seattle you can't get it serviced. The Seattle and Bellvue Saab dealers have shut down, you have to drive to Tacoma for warranty work and that dealer is barely hanging on. So what is Saab owner with a 5/100 factory warranty suppose to do?

    We're already seeing the impact of what would happen to a BK brand. GM has already announced that Saab, Hummer, and Saturn at dead, and Pontiac is a zombie. Surprise, surprise, collectively their sales were down about 60%. These were dismissed as fear mongering now it is reality.

    Look. I was completely against any bailout. I was completely against TARP. But you can bailout Wall Street and stick two middle fingers high in the air to Main Streeet.

    Second, the idea that Toyota will suddenly pick up this production is complete folly. Toyota lost $6 billion in 3Q, they are on track to lose $8 to $9 billion in 4Q and the value of the US dollar ot the Yen is playing out more on that billion than sales volume. They only employ 33K employees in the United States (surprise) and offered buyouts to 18K of them on February 13, 2009. So if Toyota is trying to shed employees where does it go.

    Then there is the next hidden issue people aren't considering. So GM goes Chapter 7 liquidiation, hooray you can buy new cars for 40 to 60 cents on the dollar, good for all, right? Well if you can suddenly buy a brand new Chevy Malibu, lauded for quality, performance, and style by the likes of Consumer Reports and the press for the cost of a used car - why on earth would you buy a Ford? Or a Toyota? Or a Honda? Warranty not with standing. At 50 cents on the dollar that buys a lot of spare parts.

    This is a very dangerous slope, and I don't think a lot of people have thought out clearly the slippery slope it leads.

    With that said, I am planning to test drive a Ford Fusion hybrid this weekend, if my local dealer has one available. They are getting RAVE reviews, and apparently kick the Camry hybrid into the ground in every category, while remaining a truly driveable car with 192 HP and 0 to 60 in a bit under 9.

  • Report this Comment On March 06, 2009, at 9:51 PM, SnapDave wrote:

    Where does this idea come from that hybrids are the way to salvation? Look at the sales numbers people! While Prius, and really only Prius, has been successful Toyota would have done just fine without it. What happens when the amount of people who feel strongly enough about being ‘green’ to pay a premium for it reaches a limit? This will remain a segment potentially adding a small amount (every little bit helps) to the bottom line while appeasing political pressures. It is not going to change the fortunes of automakers. This may be a particularly bad time to jump in since the technology may rapidly favor Li ion while leaving NiMH in the dust.

  • Report this Comment On March 07, 2009, at 5:08 PM, catoismymotor wrote:

    Ford is clever. If they outlast GM and Chrysler they will be the only game left in the country for a large domestic maker.

    Hybrids are a bit of a joke IMHO. The lead is mined in Canada, shipped to Germany for refining, shipped to Japan for the manufacturing of the batteries, and then shipped back here. The lead needs to circumnavigate the globe in in order to make a reduced emissions or zero emissions vehicle. How large of a carbon footprint was made just so the purchaser of a supposedly green vehicle can feel smug.

  • Report this Comment On March 07, 2009, at 5:27 PM, dudster wrote:

    Only one thing matters: will Ford build cars people want to buy? So far, they are doing just OK; the "green" Explorer, and great reviews on their current lineup, as well as great quality news, have set them up well. Can they really come up with quick turnaround on design, grab what the consumer wants and package it attractively enough? This is F's chance to really rethink the production of the car -- superfast redesigns, rapid retooling and production, rapid response to market changes. I am a believer enough to violate all my Foolishness, and actually (gulp) speculate on Ford. Yes, the S word. At this price, I can pack my lunch for a month and use the money saved to buy in.

  • Report this Comment On March 09, 2009, at 11:48 AM, rmiers wrote:

    As a ex car guy, started at 19 selling chevys, top saleman, then olds, cad, mer/benz, managed pontiac, madza stores i watched the 60's-70's (17 yrs) an saw demise coming and my dream of a franchise becoming bad investment(quit in jimmy carter suicide era) Smith started dismantling GM, Japan camel nose now in tent. rich kids buying dealerships (n' driving prices up 3X and iccoca showing what a true car guy could do. Smith started with 65% market share, and ford started with 18% and had 30%+ before bill ford got jealous and ran him off. He took a bankrupt co and made it more profitable than ford stores. Smith fired all the car men (guys who knew the business) and replaced all with "yes" no talent men only interested in themselves.

    Came up with ideas of (same A/C compressor on cad n' chevy) no convertibles, no mini vans, all chevy, pont, olds, buick, caddy's had his name on them..i.e. General Motors cause he was ceo. the market (buyer's) liked the quality and styling between the different models. the great dealers who built their franchises died off and rich kids took their place. Both ends slowly died, maker an seller with unions taking money and quality. German and japan are smart people and government, makers, and sellers handed them their start on silver plater. Best thing Smith could come up with was vega, citation, and other mega flops.

    You can't build and sell cars if ya don't know how. The investors ran off Roger Smith(when market share approached 27% but left all the "yes" men that he had hired. Some are still there. If ya kill the snake, you need to hunt down and kill the nest. W made same mistake. They darn sure fired all republicans during changing of watch. Unions did not kill US automakers, the likes of Smith, Waggoner, and Nardelli and company do. Unions were not helpful but the blame lies with unsuccessful ruthless management. You do not go to a knife fight with a butter knife. Global competition is fierce.

    This car problem can be salvaged but you better bring an adult..and one that knows what he is doing. The only guy stand out is Iccoca, he is bit old but of the vintage who gets better with age. He would never get along or take any crap off of the teleprompting, empty suit who takes his orders from offshore and the media moguls. If you get a chance, read what Lee Iccoca has said about our national disease. It is so plainly spoken and accurate that you will know it to be truthful and something that would work.

    Washington cult pols would get sick because it would be like pulling out some garlic on the vampires. (Which they truly are).

    Bottom line, we need folks who know what they are doing, and know it so well, they don't need a plan. Off topic, could we hire Bernie Madoff for Geithner's assistant? He sure keeps a great set of books, and no need to vet him and besides they have quit the vetting process (head of super spys has never been checked out) and empty suit is mum.

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