David Cole: Ford's Debt Adds $1500 to Cost of Every Vehicle

Robert Farago
by Robert Farago

We tore David Cole a new one the other day, when the leader of the manufacturer and union-supported Center for Automotive Research suggested that trimming GM and Chrysler dealers wasn’t such a good idea—based on some schmoozing with his pals. Never let it be said that I won’t trot-out a dubious source when it suits my editorial needs, especially when it comes to bashing Ford. Just kidding. I love Ford. My first three cars were Fords. I want Ford to succeed. I am not, however, blind to the fact that Uncle Sam shoveled $10 billion worth of no-to-low-interest twenty-five year loans in FoMoCo’s direction. Nor am I Detroit News columnist Daniel Howes; I will not predict sunshine and roses simply because there’s a government-sponsored break in the clouds hanging over the Glass House Gang. TTAC commentator Mark MacInnis shares my skepticism, with a nod to Mr. Cole . . .

Amidst all the hoopla yesterday about Ford’s quarterly profit, was this little nugget, which doesn’t bode well for their future. “‘That puts Ford at a competitive disadvantage,’ said David Cole, chairman of the Center for Automotive Research in Ann Arbor, who estimated that servicing Ford’s debt adds more than $1,500 to the cost of every vehicle the automaker sells in the United States.” Now, Ford sells as many or more cars worldwide as they do in the U.S., so the cost advantage per-vehicle is actually less than this hyped number. But it’s still what? A six percent or seven percent cost dis-advantage? That’s BEFORE the labor costs, which are higher than GM since the UAW repudiation of Ford’s contract do-over. And higher than Toyota’s and Honda’s. Still. So, add it up, and Henry’s company has to build vehicles ten percent more efficiently or ten percent more desirable to overcome that debt-related disadvantage. A formidable task. So, before we all start congratulating Ford on dodging the bullet, we better watch out for that ricochet . . .

Robert Farago
Robert Farago

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  • Pch101 Pch101 on Nov 07, 2009
    it is more difficult to generate profits when you have a cost per vehicle disadvantage versus your competitors. One of the points that I have made here is that Mr. MacInnis is grossly overstating that expense. The $1500 figure is essentially wrong when you see how the debt is allocated. Feel free to look at the link of the financial statements to see the details on the numbers. Another point is that the debt is being reduced over time, so any such disadvantage should be temporary if cash flow can be generated, debt refinanced at lower rates, and debt terms renegotiated. As has been the case with all of the domestics, Ford's most striking problem is with revenue. The Ford brand is still weak, so it sells cars for less money than the competition. Part of this is expressed in the form of incentives, which are still well above the industry average: http://www.edmunds.com/help/about/press/159666/article.html Ford does seem to making headway on the pricing front. Mulally seems to have figured out that it is better to sell fewer cars for more money, than it is to take the GM approach of building to maintain market share while generating losses. But the brand building process takes time. The challenge for Ford is to hold the debt at bay so that it can improve its pricing power enough to build the earnings that will ultimately used to repay the debt.
  • Accs Accs on Nov 07, 2009

    Maybe its just me.. But I dont see the same problem involving the debt rising the price of every car. I see it is.. Actually SELLING THE DAMN CAR at the PRICE it went on sale as.. Meaning.. NO REBATES!

  • IBx1 Everyone in the working class (if you’re not in the obscenely wealthy capital class and you perform work for money you’re working class) should unionize.
  • Jrhurren Legend
  • Ltcmgm78 Imagine the feeling of fulfillment he must have when he looks upon all the improvements to the Corvette over time!
  • ToolGuy "The car is the eye in my head and I have never spared money on it, no less, it is not new and is over 30 years old."• Translation please?(Theories: written by AI; written by an engineer lol)
  • Ltcmgm78 It depends on whether or not the union is a help or a hindrance to the manufacturer and workers. A union isn't needed if the manufacturer takes care of its workers.