Ford: Federal Loan Package Doesn't Entice Kerkorian To Stick Around

Things are really bad here in the Detroit area, in case you haven't heard. The housing market is one of the worst in the country, Detroit's political landscape has been riddled with scandal, and of course the auto industry is in a dismal state to say the least.

On Tuesday billionaire investor Kirk Kerkorian sold 7.3 million shares of Ford (F) and may sell his remaining 133,500,000 shares "depending on market conditions". Kerkorian had originally been buying shares in the $7-$8 range. Shares closed at $2.17.

Apparently the $25 billion federal loan package the government handed the Big Three didn't entice Kerkorian to stick around. Even with government aid, the word seems to be that the Big Three may become the Big Two. Whether the new Big Two is a result of a merger or a failure is still speculation which we will likely have a clear answer on soon.

If the auto makers cannot compete, they must be allowed to fail in order for the free market to self correct. As much as I would hate to see one of these great symbols of capitalism fail, in the long run it is the right economic decision for Detroit and America.

I believe economist Fred Foldvary's conclusion on the auto industry from progress.org should be the policy we take with the auto industry:

There was a bad precedent 25 years ago, when the federal government bailed out the Chrysler Corporation. Now that the whole US automobile industry has failed, declarations of bankruptcy would not be a catastrophe. Other firms would buy the factories, and could start clean with no legacy costs. A bailout would lead to further demands from other industries. It would be best for the American economy to avoid any more bailouts, but also to restructure government policy to stop both the taxes and the subsidies that have distorted the economy.

Government is not allowing prices and profits to do their economic jobs, and further interventions will just make the problem that much worse in the long run.

Comments

[Johnc222:]

What people fail to realize,..is that the Automobile Industry is a big aspect of our National Security. The 3 most important companies that contributed to winning World War II was Boeing, GM , Ford obviously Boeing is not in the auto sector. If there is ever a War with China do you think the Chinese will build our troop transport or our tanks while we are killing their soldiers..?

Hugo Chavez has invited the Russian into Latin America and is trying his best to entice the Chinese there to open up a Military base. Southern Command needs to be worried.

The autor of this article is making the mistakes we have made over the last 20 years which is to be to short term orientated. One of the reasons Toyota Motor is so successful is that the Bank of Tokyo owns a large share in the company. And the Japanese Government owns a large share of the Bank of Tokyo...so you see Japan Inc. is alive and well. How can the big 3 be expected to compete against the entire country of Japan ?

That 25 bilion dollars the U.S. Taxpayer invested in the big 3 will pay dividends for Generations. Every dollar that is saved by not buying gasoline will only make the United states stronger in the long run.

So, once agin the author of this article has one big problem in my opinion....which is he has no..... Imaginaton.

2008 Oct 23 08:28 AM

[Paul Killinger:]

Brian,

I'm on your side here buddy, but to equate the importance of GM and Ford to our national defense is stretching it. First off, we already outsource major parts of vehicle manufacture to other countries, and we have domestic vehicle manufacturing capacity mothballed everywhere.

As for cutting back on imported oil, I'm right with you. So why doesn't Detroit begin building NGV's again, like they do in numerous foreign countries? You can buy 19 different NGV models made by GM and Ford in Canada, and GM will convert new cars they've already sold to operate on this fuel FOR FREE in Germany.

The market helps those who help themselves, which is a lesson Detroit has apparently failed to learn yet. Now that gasoline is headed back toward $2/gallon, what are they doing? Why advertising Hummers and introducing big new SUV's, of course.

They're not even ridiculous, just increasingly pathetic. You could give them all the money in the Treasury, and that would only postpone the inevitable. What they REALLY need to do is fire their executives and dismantle their unions.

When you all begin to see the logic and common sense in such ideas, Detroit will have a new opportunity to arise from its ashes.

2008 Oct 23 10:08 AM

[watchone:]

I completely disagree.
(1)There was no bailout of Chrysler. The government guaranteed a loan that Chrysler had arranged through a thrid party. The loan was paid back early with interest - there was $0 cost to the taxpayer
(2) Ford has about $38 billion they in cash and credit lines with $0 from the govt. in loans or guarantees. So we cannot make them file right now. If they do file though we -tax payers-are saddled with providing those who lost jobs in terms of pensions, lost taxes, and lost retirement benefits. Not only from Ford, but from dealers, suppliers and associated businesses. The factories will be torn down or rot...it is cheaper to build new and no one will invest in factories in MI without govt. incentives
(3) Compare the Chrysler in the early 1980's (we saved jobs, stabilized a company, retained shareholder value and saved associated businesses $0 to the taxpayer) to Kmart in the late 90's (shareholder value to 0, lost pensions, taxes etc.) and then VC guys pick up the pieces cheap and make a fortune

2008 Oct 23 04:35 PM

[Paul Killinger:]

Okay, fine. I sincerely hope you're right.

But this isn't 1980 and we're not just talking about making "loan guarantees" to Chrysler.

$50 billion is real money. And do you really believe they will become profitable enough to pay it back? Ever?

If we need to restructure the industry, let's do it now. And we can use the money to pay for pensions, medicare and worker retraining instead.

But we both know that's not going to happen. The Congress will send the 50 and several times that much before it's over to buy votes from the autoworkers.

And in the end the industry will be no more competitive. It's only going to be a huge sinkhole for U.S. taxpayers before it's finally over.

2008 Oct 23 08:30 PM

[watchone:]

Ford has restructured. Renegotiated contracts, streamlined factories and globalization of the product portfolio. It took an outsider, Mullally to do this. I think GM may need chapter 11, they are still the same old GM trying to push out the Volt and save the day-foolish. Chrysler is being groomed for a sale or merger. So in principal I agree do not pay out $50 billion to any of these guys, my point is that Ford may well make it on its own and further, I do not believe that a guaranteed loan to them would be lost.

2008 Oct 24 08:44 AM