Oh, how the mighty have fallen.
Last year, one of the major headlines in the automaking world was that No. 2 U.S. seller Ford
And today, the company detailed another plan designed to clear out unsold inventory and boost market share in one fell swoop -- a plan that, sadly, is also based on junk.
Management intends to clear out its bloated inventories of 2006 model-year cars and trucks by targeting buyers with lousy credit histories. Ford intends to offer everyone, including so-called "subprime" borrowers, 0% financing for up to six years.
For those of you keeping score, automakers Ford and GM
Let me risk understatement and point out that Ford's latest junk plan raises serious risks. We've already seen in the housing market what happens when generous loan terms are extended to subprime borrowers: They default at higher rates. In a May column from The Wall Street Journal, analysts from Bear Stearns
What happens if Ford's buyers track this trend? Many will default on their car loans, and the company will wind up repossessing their cars. Which would: (1) defeat the purpose of the initiative, by putting repossessed inventory right back on Ford lots; and (2) exacerbate the damage, as American cars are (often wrongly) judged to be worse in quality than foreign makes, and therefore lose resale value more quickly. Ford may well boost its sales, and its stock price, with this new initiative. But as pretty as the numbers may appear over next few months, beware: They could be headed for the compactor down the road.
Then again, all this may prove moot to the company's current investors. Find out why in "Ford's Private Thoughts."
Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.