If ever there was a demonstration of the absurdity of government playing in business, the drama unfolding with Ford and the government-funded automakers of GM and Chrysler is beginning to show it. Unfortunately I doubt many will see the lesson, again.
Of course it's not just automakers. Tack any number of greedy banks onto that list. Free money for failure! Free money for failure! Hard to resist... until they take a hard look at the strings attached and realize it's not free. And it shouldn't be... it's my money. Being thrown at failure... my money again. Now some of them are wising up and trying to give it back... and my government is refusing to accept it, preferring to use it as leverage for yet another social engineering scheme destined to lead us to banana republic status. Last week we heard Bank of America got pressured into buying Merrill Lynch, Ken Lewis abdicated his fiduciary responsibility to his shareholders and government officials conspired to withhold information from the taxpayers that were helping BofA buy it. The mess gets stickier and stickier. But that's what happens.
A real kicker for me was when Congress and the President hauled a bunch of credit card companies before them and told them that credit card fees and information need to be written in "plain English." Good for them, but talk about calling the kettle black. How about attacking 80,000 pages of tax code first. Individual taxpayers spend $26 billion on outside help with tax preparation, and lose $100 billion in productivity. Hmmm...now where could I use that money?
If you're naive enough to think you can get something for nothing on a new mortgage, you should fail. If you're dumb enough to invest in those mortgages without realizing there's no underlying value, you should fail. If you're ingenious enough, in a mad scientist kind of way, to fashion complex financial instruments out of those packages of worthless mortgages, you should fail. If you keep producing cars that no one wants, ignoring improvement methods right in front of your noses, and paying people several times the prevailing rate, you should fail.
I pay my bills on time, read contracts I enter into, understand that I must live within in my means, save money for the future to offset unknown risks, and accept accountability for poor choices. And I'm ticked off.
Ok, sorry, perhaps I just needed to unload a bit. So let's finally get to my point:
I'm even more ticked off now that I read about how Ford is beginning to rebound. I'm a taxpayer (and one of the few remaining...), and my leader has decided to take my money, a big bunch of money, and invest in GM and Chrysler. And yet, Ford is winning.
One of my President's (uhh... "financial advisor"?) investments is thinking about filing for bankruptcy as early as next week. The other is rightfully shedding redundant operations like Pontiac, but moving slower than the Titanic. I'm guessing I'll get to use that metaphor again in a couple months.
But my hard-earned funds got invested, purposely invested, in failure. Not only that, but now Ford is actively using my own investment in its adversaries as a marketing tool! Egads!
The results reflect in part Ford's strategy: to steal customers from its weakened crosstown rivals and separate Ford from GM and Chrysler in the minds of the public, investors and lawmakers. One ad placed by Chicago-area dealers argues that "Ford's progress in the past two years demonstrates why it doesn't need a bridge loan from Congress." The ad assures customers that the dealers look "forward to serving you for many years to come" -- a barbed reminder that Ford, unlike GM and Chrysler, isn't on the edge of bankruptcy.
And it's working!
Chrysler and GM owners "have been defecting to Ford and Lincoln-Mercury products in great numbers since the beginning of the year," Amanda DeMouthe, a marketing manager for Ford's Northeast operations, wrote in an April 9 email to dealers. Independent numbers seem to back up Ms. DeMouthe's assertion. In March, 48% of Ford buyers turned in cars or trucks of other manufacturers.
This must stop! We must pass a law to distort the market even further! Uhh... wait a minute. I better not say that too loudly... in this crazy confluence where policy and politics try to override markets, someone might think that's a good idea.
Ford "is successfully differentiating itself from its wounded domestic competitors in operating performance and with consumers," Efraim Levy, an auto analyst with Standard & Poor's, wrote in a note Friday. Ford's stock has risen from a low of $1.26 on Nov. 19, the day after the first Washington hearing, to $5 today.
If Ford and my President Financial Advisor keep this up I may have to hedge my investment by throwing some money at the other side... by buying a Ford. And I need to keep a close eye on said Financial Advisor to see if he can turn my investments around in the next 3 1/2 years. If I have any investments remaining by then.
That hybrid Escape is looking pretty nice.
Evolving Excellence
Talk about hypocrisy when the government lectures individuals to not overextend themselves on credit cards.
Talk about unintended consequences if Bernie Sanders, the socialist from Vermont, had his way and credit card companies were barred from charging more than 15% interest. Think of all the people who won't be able to get cards then.
I'm getting tired of the government meddling or trying to meddle in free enterprise. Look what they've done to the schools... who ever thinks of government operations as efficient, and the sheeple want the government to run healthcare. Now that's crazy.
Posted by: Raging Capitalist | 26 April 2009 at 01:37 PM
Why on earth would our government leaders, elected from major contributions from the UAW, invest major dollars into a company that employs most of the UAW workforce at unreasonable and unsustainable pay and benefits levels? There's no connection there! None at all...
I applaud Ford for watching the concessions GM was able to negotiate with the UAW and use them to Ford's advantage. I think this certainly helped.
In the end, as one would expect, the simple laws of supply and demand show themselves. Demand drops and only the companies flexible enough to cope with such a significant drop can survive. In turn the weakest go out of business and the strongest pick up the market share. These banks and automakers should have been left to go out of business so the bottom could be found and the market could bounce back sooner. Instead we prolong the inevitable, and delay the return of better days.
Posted by: Mike | 27 April 2009 at 06:04 AM