GM, Ford Subjected to Dueling Analyses

GM, Ford Subjected to Dueling Analyses
October 19, 2010

Fitch Ratings, a global credit rating agency, has given General Motors Co. the same debt rating as Ford Motor Co., a decision that must have left Ford executives shaking their heads and muttering.

General Motors has taken billions of dollars of federal bailout money and unloaded billions of dollars of debt. Ford has taken no bailout money and has been repaying its debt.

The BB- rating for GM, 61 percent owned by the U.S. government, reflects its “strong liquidity position, low leverage, improved cost structure and increasingly competitive product portfolio,” wrote Fitch analyst Stephen Brown in his October report.

Much the same can be said for Ford, which relied on good management, marketing, and design instead of a bailout and bankruptcy. Forbes magazine in September published an interview with Lewis Booth, Ford’s chief financial officer, on getting Ford’s finances in order.

Fodder to Oppose Bailouts
“Ford’s Unsung Hero”—which gives you some sense of the magazine’s stance toward Booth— has given market analysts more evidence for opposition to the bailouts by detailing Ford’s decision not to seek a bailout and not to enter bankruptcy, and the company’s determination to come out of the financial crisis stronger than it went into it, even if that meant taking on more debt.

“I think that the Forbes magazine take on the Ford CEO is right on target,” says Thomas Hopkins, professor of economics at the Rochester Institute of Technology. “I think he is an example of the kind of tough-minded and carefully strategizing executive that the industry was lacking on the whole, and he certainly deserves all the credit that he’s getting for managing to pull Ford through without that government bailout.”

Hopkins says the bailouts have not turned out as badly as he initially feared they would—but they haven’t turned out well.

“It’s very hard to think that the taxpayer is ever going to get compensated anywhere near fully. The government will eventually get out of the auto business, but the taxpayer will be left with a significant, I suspect, unpaid bill.”

‘Trampled Established Law’
Ted Frank, an adjunct fellow of the Manhattan Institute, sees more than an unpaid bill on the horizon.

“The worst part of the bailouts was the way the [Obama] administration used political threats to trample over established bankruptcy law and settled expectations,” he says  “In the long run, the bailout will cost far more jobs than it saves, even in the unlikely event that GM and Chrysler pay back the government in full.”

Cato Institute Senior Fellow Daniel Mitchell doesn’t mince words.

“I hope Ford does well, since they demonstrated integrity,” Mitchell says, “unlike GM and Chrysler, which evaded the normal bankruptcy process to steal from taxpayers.”

Arin Greenwood (aringreenwood@gmail.com) is editor of The Heartland Institute’s Out of the Storm News. Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing editor of Finance, Insurance & Real Estate News.