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Dan Calabrese
  Dan's Column Archive
 

January 29, 2007

Let Ford Die

 

Wall Street has gotten used to the news from Ford Motor Company being bad. Last week, the news didn’t disappoint.

 

It was so bad, in fact, that it’s worth asking whether Ford deserves to stay alive and keep giving us more of it. Maybe it’s time for Ford to die.

 

America’s worst automotive company – and that’s saying something considering the competition – lost $12.7 billion in 2006. Wait! It’s not as bad as it seems! Ford helpfully explains that some of the loss represented a charge related to the company’s restructuring. You know, a one-time expense.

 

But here’s an all-the-time expense: Every time Ford sells a car, it loses an average of $2,000. And even though its market share is in the toilet and someone just flushed, Ford still sells a lot of cars. That’s a lot of losses, and it comes from a lot of places. Ford is responsible for the health care costs of 100,000 retirees. They started the year paying wages to 75,000 hourly employees, which is far more than they need, hence their offer of a buyout to every single one of them.

 

Ford has idled nearly a dozen plants, which means they are still paying considerable overhead and taxes on each plant and getting no productivity out of any of them. Then again, every time they make and sell a car they lose money, so maybe they should idle all the rest of their plants as well.

 

Indeed, there’s an idea.

 

Supposedly management’s turnaround plan projects the company to return to profitability in 2009. They still have $43 billion in cash on hand – although much of that came from the mortgaging of every asset the company owns, even its blue oval logo – so theoretically Ford could survive three or four more years like 2006. And then?

 

Not to worry! The turnaround plan will save $5 billion, or so we are told, by 2008. And when you’re losing nearly $13 billion a year? Boy. You do ask persnickety questions, don’t you?

 

Ford is a very very old company. It has a lot of employees. It has facilities all over the country, but especially in Michigan, where host communities rely on real and personal property tax revenue from these facilities. An army of suppliers depends on business from Ford, even though in recent years the suppliers have been forced in many cases to accept work with little or no profit margin. A nationwide dealer network makes a living selling Ford cars.

 

For all of these reasons, a consensus of just about everyone seems willing to move Heaven and Earth to keep Ford from going under. It is the same mindset that permitted the biggest corporate bailout in American history – that of Chrysler in 1979 – only to see the company swallowed up two decades later by Germany’s Daimler-Benz.

 

Ford and its disaster twin General Motors, which looks downright prosperous by comparison, have been such dominant players in the economy for so long that the prospect of their demise strikes most people as the economic equivalent of a nuclear holocaust. Ford’s death is unthinkable.

 

Let’s think.

 

America’s is a free-market capitalist system. You do well and prosper, outstanding. You lose $12.7 billion a year? Well, it sure seems to me that you are a candidate for going out of business. At present, every economic policy of every local, state and federal agency is designed to save Ford at all costs. It is the natural tendency of our social and political structure to keep companies alive when they provide so many jobs, so much tax revenue and so many contracts for others.

 

But it is a perversion of our free market system to believe that any company, no matter how large and important, must be kept alive no matter what it takes. Ford cannot control its costs. It cannot stop the erosion of its market share. It cannot manufacture and sell cars as affordably as its competitors. It can’t even allow its suppliers to make a profit on Ford work. That would cost too much.

 

Ford is a failing company. Its demise would hurt a lot of people, but no economy can sustain itself over the long term if it keeps propping up companies who can’t survive on their own merits. The death of a behemoth inevitably gives rise to newer, smarter, better enterprises, who create new jobs and new opportunities. This is how capitalism is supposed to work.

 

Keeping Ford alive at all costs compromises the integrity of America’s economy. If Ford can turn it around, great. But no public policy – in the form of tax abatements, infrastructure investments or what-have-you – should be designed to prevent its fall. Sound economic policies reward companies who deserve to survive.

 

If Ford deserves to die – and we’ve just been presented with 12.7 billion reasons to think it might – then Ford should be allowed to die.

 
© 2007 North Star Writers Group. May not be republished without permission.

 

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