A stony road

In both America and Europe, Ford faces government-backed rivals

SPARE a thought for Ford Motor Company, which lost $14.7 billion last year but is battling on, trying to fix its problems with hardly a shred of government help in either America or Europe. In America its two domestic rivals, General Motors (GM) and Chrysler, are using bankruptcy protection and $62 billion from the Treasury to shrink their debt, reduce the cost of their obligations to retired workers and prune their sprawling dealer networks. GMAC, the lender that provides loans to the customers and dealers of both firms, but not those of Ford, has received $13.5 billion of funding from the government. In the European Union, meanwhile, despite strict rules intended to stop states from giving an unfair advantage to “national champions”, France and Germany have rushed to prop up three of Ford’s main competitors.

Ford escaped the fate of the other two Detroit carmakers by tapping credit markets just before they began to freeze over. It risked everything by pledging all of its North American assets as collateral, raising $23.6 billion in 2006. But some think the gamble has backfired. The Supreme Court’s decision not to interfere in Fiat’s purchase of a stake in Chrysler, concluded on June 10th, should help Chrysler and GM emerge as more daunting competitors soon. In particular, a streamlined GM, shorn of several ailing brands and 2,600 dealers, and with its debts reduced to $17 billion, will be able to generate more cash to revamp its line-up while focusing its marketing budget on its best vehicles.

By contrast, Ford began the year with debts of $36 billion. Because of state franchise laws that bankruptcy circumvents, it has only been able to trim the ranks of its dealers by 15% since 2005 to 3,700. It is also unclear whether the United Auto Workers union is willing to offer Ford the concessions it made to GM and Chrysler under the pressure of imminent collapse.

Moreover, GMAC can borrow more cheaply than Ford’s wholly owned finance arm, Ford Credit. On June 3rd GMAC (which used to be owned by GM, but now belongs mainly to the government and Cerberus Capital Management, a private-equity firm) borrowed $3.5 billion for three and a half years at a cost of 2.2% a year, with a guarantee from the Federal Deposit Insurance Corporation (FDIC). Just a few days earlier, Ford had issued $1.1 billion-worth of five-year bonds at 8% interest.

Yet Ford is still happy with its decision to avoid the government’s embrace. Polls show that some 70% of taxpayers disapprove of the bail-outs of GM and Chrysler. Research by Edmunds.com, an automotive website, suggests that Ford is likely to win much of the custom of those who would rather not buy a car from “Government Motors”. Moreover, if a scaled-down GM no longer floods the market with discounted vehicles, Ford should be able to raise its own prices. It has capitalised on each morsel of good news to swap debt for equity, gradually reducing its burden by $10 billion so far this year. The dilution does not appear to have hurt Ford’s share price, which is up four-fold since late February.

It is the European bail-outs that really rile Ford. Wolfgang Schneider, who handles its relations with European governments, says, “In the US, it is a level playing field because we could have chosen to go the route of GM and Chrysler, but in Europe it is not.” Although it has about 10% of the European market, putting it in third place behind PSA Peugeot Citroën and Volkswagen, Ford is nobody’s “home team”. It makes cars in Germany, Spain and Belgium. Britain, by far its biggest market, only provides engines and vans.

Ford has complained to the European Commission about the €6.5 billion ($8.4 billion) that the French government lent to PSA and Renault in February on terms no commercial lender would have offered. It is even more exercised about the €4.5 billion in loan guarantees that the German government has promised the new owner of Opel on top of the €1.5 billion in bridging finance it has already provided. “What are the conditions?” asks Mr Schneider, “There is no transparency.”

Ford’s protests are likely to continue to fall on deaf ears. One answer might be to move some production back to Britain, where, despite ending car assembly in 2002 (after 90 years), Ford is still the nation’s favourite automotive brand. Sadly, as Mr Schneider observes, “The UK is the only country that plays by the rules.”


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