Auto Bailout: Ford's Sentiment Tells All

Of the Big Three, Ford (F) is said to be the most solvent. Does Ford want its weaker competitors to fail or survive?

In many industries, each producer fantasizes that some of his competitors would go out of business. With their failure, the surviving producers can raise prices, cheaply acquire assets for expansion, and negotiate better deals with firms that supply inputs to the industry.

Notably, Ford has (apparently) not aspired for failures by GM (GM) or Chrysler and the aforementioned advantages that would accrue from their failures. Ford has actively participated in the lobbying efforts and - aside from sending its CEO on the first DC trip in a private jet - has missed many opportunities to sabotage the bailout.

This fact tells us a lot about the bailout's impact. Ford must believe that a bailed out GM and Chrysler would charge higher prices than would the manufacturer(s) who would serve GM and Chrysler customers after they failed. It's easy to see why Ford might believe this: a GM or Chrysler failure would break union contracts with those two manufacturers. Ford still would be tied to its contract as long it remained solvent, and thus would find itself competing with unionless manufacturers. Ford would benefit by a bailout of its competitors because the bailout would prevent its competitors from reducing costs.

If the Bush administration were loyal to the consumer, it would have asked Ford what kind of bailout it wanted for GM and Chrysler, and then would have done the opposite! In fact, the Bush administration did pretty much what Ford wanted, and thereby revealed its loyalties.

Disclosure: None

Comments

[User 309434:]

they need to get rid of so many models and sell more classics that hold their value

2008 Dec 22 08:45 AM

[coldride:]

No mention of the adverse effect of GM / Chrysler bankruptcy on supply chain. Transplants would also suffer. Grinding an axe for Ford?
I'll give you a mulligan if you'd like to tee up again.

2008 Dec 22 11:42 AM

[brianguy:]

these are complex industries and markets with many issues involved, which most people for or against the bailout fail to address.

there's sort of a fallacy that leads people to falsely believe that if a competitor goes out of business, it's great for the other guy's bottom line. it's already been explained that this would not be true in this case because the supply chain would suffer, and due to labor problems. I agree the best thing for F was the bailout, because it kept them from bankruptcy and reducing costs which F could not, by remaining solvent.

further Ford would be no monopoly, the furthest thing from it. therefore no great advantage there. further, lack of competition often breeds complacency. while that's less likely with so many foreign competitors, it could still be true, just to a lesser degree. GM/Chrysler tanking would also cause the UAW to throw all of its many legacy costs behind Ford and nobody else.

2008 Dec 23 10:22 AM

[working at ...:]

the only good thing about this article is that is short

2008 Dec 23 10:44 PM

[working at ...:]

Seeking alpha purpose must be to prove that people have nothing better to do than type


On Dec 23 10:44 PM working at frod wrote:

> the only good thing about this article is that is short

2008 Dec 23 10:45 PM