By on April 26, 2011

The estimates seemed enthusiastic, but they weren’t enthusiastic enough. Ford had a solid first quarter.

First quarter revenue was $33.1 billion against estimates of $28.1B. Earnings per share were 61 cents against estimates of 50 cents. As of this writing, F is trading a $15.95 and heading up. I remember buying 20,000 shares in 2009 and selling them to finance a Koni Challenge run. If I’d held on to them, I’d be in a Daytona Prototype today!

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71 Comments on “Ford’s Making Money...”


  • avatar

    nice job. bet GM shareholders wish they could “swap their stock”.

    now fix Lincoln. get rid of the goofy alpha numerics, give your dealers more margin to work with, then just put all your energy into the products. this business isn’t all that difficult really.

    • 0 avatar
      Zackman

      Drop the stupid, tarnished “Taurus” name and give that car its proper name: Galaxie 500. Now, that would (maybe, hopefully) force Chevy to re-introduce a proper Impala that lives up to its name and heritage. If they do that, it’s on once again! Everyone wins!

  • avatar
    Sundowner

    And they’d be at $20 a share if they’d fix Lincoln. FoMoCo is still stuck in the ‘luxury” definition of overpriced cars when everyone else in the game has moved on to the “premium” definition.  Makes me want to scream when I see the bloated coffins on the Lincoln lot and the Boss mustangs on the Ford lot. Put a high performance drivetrain into a well tuned chassis. put leather in it, a Lincoln badge on it, brag about how it trounces S4′s and 335′s, and sell buckets of them for $40k+. This isn’t hard, people….

  • avatar
    gslippy

    Don’t tell the UAW.

  • avatar
    OldandSlow

    Ford also owes money.  Part of that $2.6 Billion first quarter earnings should be used to retire some of Ford’s debt.
     
    The bottom line:  Ford is leading the way during the recovery for the Detroit 2 – FIAT/Chrysler excluded.

    • 0 avatar
      mtymsi

      It was, Ford paid down over $2 billion of their outstanding debt with these profits.

    • 0 avatar

      They did retire some debt and in 2010 they reduced the debt enough to save about $1B in interest.

    • 0 avatar
      doctor olds

      Ford has roughly $100B more debt than GM’s $5B or $6B, as a matter of fact. Surprisingly, Toyota has $135B in debt, even more than Ford.

      • 0 avatar
        Bimmer

        What’s your source? Magic 8 ball?
         
        Per Bertels article: ‘ Ford reduced its debt by $2.5 billion in the quarter to $16.6 billion.’
        http://www.thetruthaboutcars.com/2011/04/ford-brings-in-the-q1-bacon/

      • 0 avatar
        doctor olds

        @bimmer-Yahoo finance. you can select any listed stock and then select balance sheet. 

        Ford (F)-http://finance.yahoo.com/q/bs?s=F+Balance+Sheet&annual
        Ford had $104B long term debt at the end of 2010. They borrowed several $B more recently from government under the technology implementation loan program.

        GM (GM)- http://finance.yahoo.com/q/bs?s=GM+Balance+Sheet&annual
        GM had $9B long term debt at the end of 2010, and they have paid some down. 

        At 2010 year end, Ford had $95B more long term debt than GM. Ford has added some, paid a little and GM has not borrowed more and also paid some down. My memory is fuzzy, but my “farmer’s math” estimate is above. I don’t know where I got the Toyota $135B figure though. It is NOT supported by this source, so I have to retract that part.

        Toyota (TM)- http://finance.yahoo.com/q/bs?s=GM+Balance+Sheet&annual
        Toyota’s long term debt is only $75B at this source. Apparently I was in error above.

      • 0 avatar
        doctor olds

        @bimmer- maybe you should ask Bertel where he came up with the number $16.6B?

  • avatar
    stryker1

    Makes perfect sense. At this very moment I am trying to scheme up a way to buy a Mustang 5.0.
    How much are Kidneys going for these days?

  • avatar
    th009

    Not a whole lot of useful information in this story … see the details here:
    http://www.autonews.com/apps/pbcs.dll/article?AID=/20110426/OEM/110429909/1424
     
    The really positive thing in my view is that Ford made almost $300M in Europe: Ford has refused to get into the discounting game there, and it looks like holding a line on prices has enabled them to make money in spite of the drop in market share.  (It doesn’t look like the same strategy worked for Fiat, though.)

  • avatar
    John Horner

    Now can we officially retire the “Ford Death Watch”?

  • avatar
    philadlj

    I wonder if Ford will take any heat after Motor Trend tested a Boss Mustang with faulty brakes:

    http://blogs.motortrend.com/boss-mustang-failed-brake-test-14593.html

    My guess is, unless it happens to more Bosses, probably not.

    Ford has a lot of nice products in the showroom and plenty more in the pipeline. So does GM, but they have yet to master the mid-cycle refresh so crucial to staying competitive. Too often they let their fruit rot on the vine, the Impala being perhaps the worst offender.

    Ford seems to have learned that virtually every model year, improvements can and should be made…and I’m not just talking about switching around option packages and paint colors.

    • 0 avatar
      Educator(of teachers)Dan

      Honestly that’s what EVERYONE should be doing.  Running improvements.  Hey we’ve been building Model X for _# of years and we’ve realized if we change a, b, & c we’ll improve reliability lower costs, and improve overall quality.

      • 0 avatar
        kfitch7275

        Based on my experience working with a Tier 1 supplier, I think all OEMs are making running improvements.  The problem is that they hardly ever improve the actual product.  Instead, Engineering resources are used to decrease cost from both a product and process standpoint.  On top of that, Sourcing forces Tier 2 and Tier 3 suppliers to do the same, in an effort to improve margins.  The end result is a cheaper to produce, sometimes lower quality, product, rather than true improvements.  That being said, if Engineering does their job well, the lower cost alternatives should be as good or better than what they are replacing, assuming the bean counters stay out of the way.

      • 0 avatar
        psarhjinian

        Generally, everyone makes running changes already: production is adjusted to lower cost, improve marketability, fix issues and/or slowly introduce new features.  It actually happens much more quickly now that technology allows us to a) gather feedback more quickly, and b) shorten the time required to make engineering changes.

    • 0 avatar
      Jack Baruth

      That Motor Trend article… shessh. If TTAC staffers were too f**king stupid to use an emergency brake, I wouldn’t write an anguished blog entry about it. I particularly like the part where Angus talks about not seeing a brake failure in 25 years of driving. Try driving harder, Angus, just don’t hurt your hoo-hoo doing it.

      • 0 avatar
        FreedMike

        That kind of failure shouldn’t happen, particularly on something as safety-critical as the braking system. And, yes, a handbrake will bring the car to a stop, but what if the failure happened on a crowded freeway? 

        I’m sure it’s an isolated failure – Ford would have to be suicidal to knowingly install a subpar part on such a critical vehicle system – but the guy has a point, regardless of how well preserved his hoo-hoo is.

      • 0 avatar

        I think some cars come with the useless foot brake, which cannot be used in emergency.

      • 0 avatar
        TR4

        @Pete: why not?

      • 0 avatar
        SunnyvaleCA

        There are two implementations of the “useless foot brake.”  One requires that you push it down a second time to release, making it tougher to control in an emergency situation and completely useless for coordinating with the clutch to prevent rolling back on a hill (since you have to use your foot to release the brake).

        The other form of foot brake has a simple hand-activated release.  I greatly prefer this system to a “hand brake” system for a variety of reasons:  foot is much stronger when it comes to applying the brake with vigor, release mechanism is much easier then the thumb-press of a conventional hand brake, gets the whole apparatus out of the way of the center console.  I also find that the common case of parking has a much better flow:  foot comes off the clutch, moves left, and stomps.  Finally, you can brag to your friends that you have a car with not just two or even three pedals, but a grand total of four!  About the only downside is that you can’t modulate the brake while releasing it–when you are starting up a hill you have to feel the clutch engaging and then make a 100% commitment.

      • 0 avatar
        MikeAR

        From reading Motor Trend lately, they’re too busy writing about politics, the environment and social responsibility to have done much high speed driving. So don’t blame them too much, after all they just don’t get behind the wheel enough to deal with anything not routine.

  • avatar
    jj99

    Easy to make money in an industry that the government is pouring money into.  Cheap government subsidized loans from SBA and the energy department being handed to many firms in metro Detroit.  Makes me want to throw up.

    Then, price fixing.  How?  GM and Chrysler, owned by the US government.  The US government is also a huge fleet buyer.   So, the government buys it’s own cars at inflated prices using tax dollars.  Ford is also getting a handout since they are the only other seller of vehicles to the government.  Since the GM and Chrysler prices are being held artifically high, Ford also sells for high prices.  Your tax money going to the Big 3.

    Something has gone really wrong in America.

    • 0 avatar
      mtymsi

      If there actually was price fixing amongst the domestics the imports/transplants would be snapping up market share and that’s not happening. The government doesn’t buy more cars than the general public or for that matter anywhere close to the amount bought by the public.
       
      As far as the low rate SBA/Energy Dept. loans, why wouldn’t they be low cost, checked the prime rate lately?

    • 0 avatar
      PaulieWalnut

      Sales to the Federal Government account for a tiny proportion of Ford’s revenue worldwide, $33bn this quarter.

      DOE loans, which also went to Nissan, have to be paid back with interest.

      The Federal Trade Commission would be interested in any information you have on price fixing between GM and Chrysler.

    • 0 avatar
      Jack Baruth

      I agree with you that this isn’t exactly free-market capitalism at work, but given that the Japanese, Germans, et al follow the same policy, I’m not sure this represents anything other than a leveling of the playing field among the multinationals.

      I suppose the alternative would be to have American governmental agencies purchase foreign-brand vehicles which receive subsidies from foreign governments. Saves the taxpayer a buck but I’m not sure what it does for jobs.

      • 0 avatar
        Educator(of teachers)Dan

        The state of New Mexico (which has NO automotive factories within it’s boundaries) recently purchased a fair number of Nissan Altima 3.5V6 sedans for state employees.  Apparently the state is not worried about fuel costs for it’s fleet.  (Or the new governor received some nice campaign contributions from the large Nissan dealers in the state.)
         
        Almost makes me want to join a state agency, then again many of their employees drive 4cyl Sebrings so never mind.

      • 0 avatar

        Dan, apparently some NM government works have been “upgraded” to 4-cylinder 200s. The DOT office just down the road from where I work has a slew of them in the parking lot.

        Personally, I’d rather have a V6 Altima!!!

      • 0 avatar
        FreedMike

        The state of New Mexico (which has NO automotive factories within it’s boundaries) recently purchased a fair number of Nissan Altima 3.5V6 sedans for state employees.  

        The good news: they won’t be late for work anymore.

    • 0 avatar
      jj99

      PaulieWalnut, figure it out.  The government now has a monopoly ownership of the domestics.  So, they raised GM and Chrysler prices such that the firms can make enough money to feed the UAW.  Ford also raised prices for fleet vehicles to match GM and Chrysler government sponsered price jumps. That is what is going on in Detroit.

      Many firms will not purchase Fleet vehicles from foreign manufacturers because of the anti-Japanese rhetoric started by the Obama administration with the Toyota recall attack.

      Bottom line is the government has artifically raised Detroit car prices in order to support the UAW who gave millions to Democrats in the last election cycle.  So, if you buy a Detroit product, you are being ripped off by the Democrats on behalf of the UAW. 

      The fix to this is buy Toyota and Honda.

      • 0 avatar
        psarhjinian

        Bottom line is the government has artifically raised Detroit car prices in order to support the UAW who gave millions to Democrats in the last election cycle.

        Or, you know, they could have raised prices to the point where they can actually make money selling cars.  Going into bankruptcy, GM and Chrysler’s problems weren’t cost (and, as such, weren’t the UAW), it was that they were slapping unsustainable levels of cash on the hood in order to convince people to buy their product.  Pch101 (man, do I miss his/her posts) took some pains to point this out because it felt so counterintuitive, and was very much not the message that Wagoner et al were trying to spin at the time.

        Your argument would hold water if GM and Chrysler’s products were priced higher than the competition.  They’re not, and their incentives are still high.  So if the Democrat/UAW/Illuminati/Bildeberger conspiracy is doing anything, it’s selling product too cheaply. Again.  Still.

        The fix to this is buy Toyota and Honda.

        Oh, yes, and support Japanese unionized workers instead.  Brilliant.

      • 0 avatar
        PaulieWalnut

        Bottom line is the government has artifically raised Detroit car prices in order to support the UAW who gave millions to Democrats in the last election cycle.  So, if you buy a Detroit product, you are being ripped off by the Democrats on behalf of the UAW. 

        That’s nonsense. Everyone knows that its the Masonic World Government that’s behind the price fixing to prop up their core constituency, Domestic auto dealers.

      • 0 avatar
        geeber

        Labor costs WERE a handicap for the Big Three until the 2007 contract. This contract brought the labor costs of GM, Ford and Chrysler more in line with those of the transplant operations.

        But to say that uncompetitive labor costs had no role in the Big Three’s woes is inaccurate. Labor costs were not the SOLE reason for their plight (it’s unfair to place all of the blame on the UAW), but to say that uncompetitive labor costs didn’t matter is equally inaccurate.

        They faced this hurdle for over 40 years. One labor contract isn’t going to undo the lingering effects of this 40-year handicap, anymore than someone who just shed 300 pounds is going to win a marathon the next month.

      • 0 avatar
        FreedMike

        Bottom line is the government has artifically raised Detroit car prices in order to support the UAW who gave millions to Democrats in the last election cycle.  

        Now that’d be a brilliant strategy…what better way to sell more iron than to raise prices? 

        Seriously…do yourself a favor and read your arguments over before you post them!

      • 0 avatar
        doctor olds

        @MikeAR- I am with you! Is Motor Trend still in business?

      • 0 avatar
        MikeAR

        Doc, unfortuantely they are. I’m a subscriber only because it was so cheap I couldn’t turn it down. I suppose I shouldn’t complain about the bailout saving th UAW because MT is just a jobs program for the really unemployable. Compared to the MT staff, the average autoworker is underpaid for what he does.

      • 0 avatar
        doctor olds

        @MikeAR-Sheesh! you’re making me feel guilty for my other, too strident post. I respect the political points you make, but need to defend the UAW guys who, presumably like you, just want to do their jobs and make a living. I sure hope (and expect) GM will report good profits this Thursday and on into the future. Now, If Chrysler can just get back in the black!

    • 0 avatar
      jj99

      psarhjinian, the fix would have been standard bankruptcy.  The union contracts would have been voided.  No handouts to UAW guys for quitting jobs.  Production could have been outsourced.  More engineers could have been hired with the savings from above.  And, car prices may have dropped.  That would have been the best solution for Detroit.

      Instead, the Democrats hijacked the bankruptcy in order to fix it for the UAW.  Unions won.  America lost.  We got a Toyota recall attack, lost billions in taxpayer dollars, and got high car prices for average or worse products.

      Buy Toyota and Honda.

      • 0 avatar
        aristurtle

        I don’t know if you were paying attention to what the banks were doing at the time, but getting a lender to do a chapter 11 reorganization of GM (or worse, Chrysler) in early-mid 2009 would be a complete non-starter. A standard bankruptcy of those companies at that time would have gone straight to chapter 7 liquidation. Whether this would be a good or bad thing can largely depend on your point of view, but that’s what would have happened.

      • 0 avatar
        psarhjinian

        the fix would have been standard bankruptcy.

        Which is pretty much what happened.  We’ve gone over this time and time again on this site.

        The union contracts would have been voided. 

        No.  Contracts can be voided in bankruptcy, but they don’t have to be.  And considering that buyers for GM and Chrysler were lined up none-deep (remember: credit crunch?  recession?  two debt-ridden automakers with negative equity?  banks that wouldn’t loan to healthy companies, let alone finance a DIP BK for two basket-cases like GM and Chrysler), the UAW was pretty much the only buyer

        No handouts to UAW guys for quitting jobs.

        Any company where you sign an employment contract generally makes provisions for contract buyouts.  Recall that even Rick Wagoner made out quite handsomely for running the Titanic into the iceberg, so you’ll forgive me if I have little antipathy for union workers who are being asked to quit their job because their management shows the strategic genius of a lemming.

        Production could have been outsourced.

        That would have been so awesome for the American job market in the middle of a recession!

        Did Ron Gettlefinger run over your dog or something? Because I don’t get this animosity towards unionized autoworkers, especially when their costs aren’t out of line and they have little to no impact on productivity or quality for good or ill.

        More engineers could have been hired with the savings from above.

        You think that?  Really?  You don’t think they’d have done what they’ve been doing more of, which is globalizing and offshoring engineering to Daewoo?  Or that more engineers would have gone anything for the real problem, which was grossly incompetent management?

        And, car prices may have dropped.

        Why would they have?  Operating costs for all major automakers who aren’t Chinese or Malaysian are within a few bucks of each other.  You can’t cut prices without cost cuts, and there’s no costs to cut.  

        With no room to cut costs, how would prices have come down without gutting margin and putting GM and Chrysler right back where they were pre-BK?

        That would have been the best solution for Detroit.
        Yes, I suppose.  If you mean that it would have hastened it’s complete destruction.

      • 0 avatar
        charly

        GM wasn’t a basket-case, GM North America (and possible Europe) was a basket-case. Buick would have gone to the Chinese. Opel to Russia and the rest of GM would live the life of Chrysler, aka death within 20 years.

    • 0 avatar
      jj99

      aristurtle, that is bull.  A standard bankruptcy would have worked with standard DIP financing that could have been provided by the government.  Only problem is the UAW would have been termininated by the courts, and that is unacceptable to the Democrats after getting millions in campaign donations.
       
      Union leaders and the Democrats knew this, so they talk that “Chapter 7″ trash in order to convice the dumb public to hand over billions in taxpayer money to save the UAW.

      Democrats are out in 2 years.

      • 0 avatar
        aristurtle

        You would be complaining just as hard regardless of what kind of bankruptcy took place if the government had funded it, so why should they bother to please you?
         
        But no, you’ve been duped by the big investment banks into buying this “secured creditors got screwed!” line. Nevermind that the “secured creditors” were, by and large, the freshly-bailed-out investment banks that just wanted to double-dip at the government trough themselves. No, it can’t be a banker that’s robbing the taxpayer; it must be the guy who screws cars together!

      • 0 avatar
        psarhjinian

        I would also add that “secured creditors” and “bondholders” are not the same thing.

        Secured creditors are lenders, banks and such.  Collateral on the loans is either assets or equity.  When GM and Chrysler whipped out the begging bowl and the government said yes, they became a secured creditor and could do what they damn well pleased.  

        Bondholders aren’t necessarily secured, nor entitled to the value of their bonds.  Hell, given that both companies had negative equity even before the secured creditors got their pound of flesh—those “stolen bonds” were worth nothing—the bondholders actually did better under the government then they would have in a C7 or even an (unlikely) C11.

      • 0 avatar
        SV

        I thought most people on the east coast were Democrats.

      • 0 avatar
        Jellodyne

        In order for the democrats to be out in 2, the Neocons need to figure out who they’re going to run. Gingrich? Palin? Michelle Bachman? Gonna have to do better than that to bring back the prosperous golden age of George W Bush.

      • 0 avatar
        aristurtle

        @Jello – I’m hoping they go for the Donald Trump/Charlie Sheen ticket, myself: it should make for some damn good television.

      • 0 avatar
        FreedMike

        A standard bankruptcy would have worked with standard DIP financing that could have been provided by the government.  

        Uh…that’s pretty much what the government did, last I checked.

    • 0 avatar
      jj99

      That was no standard bankruptcy.  That was a prepack worked out by the white house on behalf of the UAW.  Management went along because they were promised a job with a bonus.  The court only approved it.  That was a scandal where billions of taxpayer money was wasted on UAW benefits.

      • 0 avatar
        psarhjinian

        That was no standard bankruptcy

        Then why haven’t there been any court challenges?  If there were billions of dollars at stake, you’d think we’d have seen at least a class-action on the part of those poor downtrodden bondholders.

        Look, it was legal, the government was a creditor, and the bondholders actually did quite well.  We hashed this out two years ago.  If you want to argue wither or not the government should have loaned them money that fair game, but everything else has pretty much been proven.

        It’s times like this that I think TTAC really ought to have a “GM Bankruptcy For Dummies” FAQ so we can not have this discussion every time someone who gets their opinions from Right Wing Blogs’R’Us starts whacking this particular deceased equine.

      • 0 avatar
        geeber

        We didn’t have a “standard bankruptcy” in the sense that the government picked winners and losers solely on political considerations, not standard bankruptcy law. The problem isn’t that the bondholders and shareholders made out better than they would have under a regular bankruptcy, or that the UAW made out A LOT better than it would have under a regular bankruptcy.

        The problem is that the procedure used left the two key parties – management and UAW – largely unscathed, and thus not really inclined to change the attitudes and beliefs that led to the bankruptcy in the first place.

      • 0 avatar
        psarhjinian

        The problem is that the procedure used left the two key parties – management and UAW – largely unscathed, and thus not really inclined to change the attitudes and beliefs that led to the bankruptcy in the first place.

        I’ll agree with you on this, but that’s because I would have liked the government to be a little more progressive and actually used it’s stake in GM to do something useful.  What actually happened was the typical milquetoast compromise of American corporatism.

        I won’t agree that the government picked winners and losers based on political implications, but instead did so based on pragmatism. The UAW was pretty much the only entity, in 2008/9, that had a stake in GM and Chrysler not being gutted for parts by the Chinese, and in the middle of the recession that seemed a reasonable thing to do.

        That said, what you’re stating is not what jj99 is arguiing.

      • 0 avatar
        FreedMike

        Management went along because they were promised a job with a bonus. 

        And I suppose the fact that the alternative would have been no company, and thus no job – for EVERYONE, not just management – just doesn’t enter into things, right? 
        You know, last I checked, union jobs are just that – JOBS. As in, worker goes to work, gets paid, pays his bills, raises his family, pays his taxes. I have no idea why this type of job isn’t worth saving. You’re gonna have to help me out with that one.

      • 0 avatar

        Psar,
         
        Even Steven Rattner concedes that it was not a “standard bankruptcy”. In his book Overhaul, he clearly states that treating an unsecured creditor (the UAW) more favorably than more senior secured creditors was most definitely not a standard bankruptcy move, but that the reorganizers felt it was necessary to get the UAW to buy into the deal. Now Rattner makes the point that the bondholders and other secured creditors would have gotten less than they ended up with had the company been liquidated, but he clearly acknowledges that there were things done that were different than what’s done in a standard bankruptcy, particularly in how senior secured creditors took a shorter haircut than the UAW.
         
        You can say that it was a normal bankruptcy until the cows come home, but Rattner, along with plenty of bankruptcy law professors says otherwise.

      • 0 avatar
        FreedMike

        @ Ronnie

        We’re talking GM here. Even under the best of circumstances that BK would NEVER have been “normal.”

    • 0 avatar
      jj99

      psarhjinian, it is not over.  Consumers are revolting.  Detroit retail share has rarely been lower.  Even Ford reported a drop in retail share Q1.  The Detroit 3 is like Yugo.  They will never come back.

      • 0 avatar
        aristurtle

        Put your money where your mouth is, then, and start shorting F. No need to argue on the Internet about it; just laugh all the way to the bank.
         
        (Or not.)

      • 0 avatar
        psarhjinian

        Yes, but that’s not new, is it?  

        They’ve been declining for years not because of anti-socialist antipathy, but because they made crappy cars for three and half decades and consumers still don’t trust them.  Trying to tie it back to your distaste for the UAW and the Democrats is rather specious.

  • avatar
    Philosophil

    Good for Ford. I hope they keep it up.
     
    p.s., Jack must be filling in for Ed or Bertel because I don’t recall seeing him posting articles as early as this one was posted this morning.

  • avatar
    jj99

    .

  • avatar
    doctor olds

    It is great to see Ford doing well! It is primarily due to the relatively modest market recovery with their new cost structure that resulted from the 2007 UAW contract.

    The bad news is that UAW president King is already fanning the flames of class envy and labor strife using Mullally’s 2010 compensation and claiming he will win back all the concessions next go round. That would be very bad news for Ford.

    • 0 avatar
      mikey

      @ doctor olds…..IMHO, Kings rhetoric, and bluster might of been the ticket in 1967 or maybe even 1987. However with the better educated, and informed membership of today? I can’t see it.

      King might make a lot more noise than Gettlefinger, but he ain’t nearly as smart.

      My mom used to say something about “empty tea kettles”

      • 0 avatar
        doctor olds

        @mikey- I sure hope you are right and it does not all turn to sh*t just when the company stands a chance of getting back on its feet. btw- I have a lot of respect for most of the UAW folks I got to know through the years. As Doc Demming would say, “Willing workers, doing their best!”.  From a high level perspective, I thought the bad effects of the union’s power out weighed the good until Gettlefinger seemed like a breath of fresh air. King has me scared.

  • avatar
    nels2727

    I think the financial markets’ reaction to the Lehman failure had a lot to do with the GM and Chrysler Bailouts.  The UAW likely got a better deal than it would have otherwise, but I honestly believe the Government stepped in to quell fears, much like it did with TARP for the Banks.  As far as the next round of UAW negotiations goes, I think the Union needs to be careful.  The government bought Ford and GM (Chrysler’s fate is iin FIAT’s hands in my opinion) time to evolve into the companies there competitors are here in the US, if they are smart enough to do it.  GM still lacks strategic direction, but Mulally came from Boeing he knows what he’s doing.  Fiesta production in Mexico is the first step, Ford will slowly shift domestic production into right to work states (which its international competiton has largely done) and Mexico, freeing the company from UAW contracts.  It will be a long process, but with a positive Outlook at Moody’s Ford is about 18 mos away from entering the Investment Grade market.  I work on a debt desk, and Ford is already considered a “crossover” credit its sold off the Investment Grade desk, but largly to High Yield investors.  Once it has a BBB handle at one agency it can meaningfully refi high coupon Auto-sub debt and add leverage to the finance sub, this should allow them to remain profitable financing their now shallow-depreciation products even if the next UAW contract is more onerous.  As long as they remain profitable the move away from UAW workers will happen.  

    Sorry for the rant, I’m sure most UAW workers are honest hard working people, but we do have to face reality.  There are a lot of people out there who can do the job and are willing to do it for less.  The closed shop states should think about the impact it will have on them and make concessions.        


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