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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