Car Allowance Rebate System: Ford Bounces Back

When the “Cash for Clunkers” concept was first announced in Europe back in April of this year, it was seen as a pretty smart way to incentivize a section of the consumer market whose goods definitely fall into the “durable” category and was heralded here as a way to spend stimulus dollars that would actually achieve the so called multiplier effect as more new cars rolling out of the show room meant more people needed to build them etc. Eastern Europe especially was seen as having great potential as thousands of Slovakians and the like traded in their Skodas for new VWs, Fiats and Renaults.

Adopting the idea here in the U.S., it was thought, might help to save the Detroit health care behemoths that produce cars as a sideline. Thankfully it did not and at least a small part of the necessary cleansing process that was needed in Motor City took place.

The pundits derided the politically mottled U.S. version of the program because it was thought the consumer boom that was financed by, yes, cheap financing had left few cars here either old enough or too un-green to generate the same participation.

Fast forward to today and it seems that America’s car culture didn’t die with Bear Stearns, Lehman or the securitization business of just about anything debt related Wall St. invented to take advantage of the piles of IOUs being created under the watchful eye of Alan “The markets will correct themselves” Greenspan.

Last Friday was the first day of Uncle Sam’s “CARS” program (for the acronymically uninitiated, that stands for Car Allowance Rebate System) and besides a few snafus (the program’s website went on the fritz, sorry Mr. Henderson, and prevented dealers from registering), the program seemed to be generating the desired results. “Customers are coming and we are already doing a good number of clunker deals,” the spokesperson for AutoNation Inc., Marc Cannon said. Alan Helfman, the owner of River Oaks Chrysler, was slightly more ebullient saying, “This thing is great man, people are coming in like you wouldn’t believe.”

After going through bankruptcy just about as quick as you can a “drive-thru” car wash GM, which obviously chose the “external only” package, now fully versed in how to receive government largess is ready to take full advantage of whatever comes their way and CARS is right up their alley. So much so that they announced an August 1 return to the leasing business through their financing affiliate GMAC. The program will focus on key models across their new four brand lineup but then you can’t give everyone a rebate with the taxpayers' money. Can you?

Ford (F), the lone native U.S. manufacturer that didn’t have to put its hand out, recently reported a $2.3BN profit and while that was primarily the result of debt restructuring in this “less bad is the new good” environment the old “in the black” is still the new “in the black”.

There are a lot of honest and hard working people in the auto industry and it really is not their fault if the union convinced them over the years that getting overpaid to under produce was the way it should be. In the grand scheme of things the U.S. and the world economy need a jump start at the moment and if the CARS program does it then it’s all good.

What we call GM actually trades under the name Motor Liquidation Co. and its symbol is MTLQQ.PK. The stock hit its most recent bottom on July 16th closing at $0.391. It is up slightly from that closing at $0.40. The CDS stopped trading on the day the company entered bankruptcy and has yet to begin trading again.

Ford, the company for whom “Quality” was “Job 1” would now like you to “Drive One”, hopefully out of the showroom and into your drive way. The stock hit its nadir on February 20th of this year at $1.58 and the CDS peaked a short time later at 14625bps on March 3rd. In dramatic fashion the CDS level for F has dropped to the lowest level yet this year yesterday closing at 1155bps. The stock closed at its high for the year a day before at $7.27.

Comments

[update:]

Obama's socialism.

GM and Chrysler cost me and my grandchildren $100 billion dollars so what better than I buy everybody's clunkers for $4500?

Maybe I should pay for other people to have all the health care they want.

Maybe I should pay Obama a trillion dollars for a fake 'stimulus' package.

Maybe I should pay for Obama's Cap and TAX scam so Goldman Sachs can be rich and the citizens of this country will be ripped off through their electric bills, at the gas pump, and well everywhere they need any product or service which required manufacturing or transportation.

Jul 30 09:49 AM

[notsosmart:]

at least support ford.they took no taxpayer money.i have no connection to the co.

Jul 30 10:25 AM

[ThomasC:]

You kill me Jimmy. You and some of these so called pundits still want to blame union health care for the sinking of the auto cos. I don't care what your bio says , you are one. By putting this b/s out there you fall right in line with the others trying to hand out wall street blinders to everyone that reads this crap. Tell the truth!!! Have you ever done a days work? I mean really other than cutting daddy's grass? You would not have lasted a day on the line. Yet you want to blame the guy on the line because he has health care. Don't blame the oil co's or wall street speculators like yourself, banks for their shit loans, and the 700 billion that they had to have with no accounting. What happend all your overseas co stocks starting to loose to cos like Ford that are making a come back by doing it right? And you can't even give them kudos for it. People don't be fooled by this guy. Invest in Ford and invest in AMERICA!!!

Jul 30 11:30 AM

[Speedzzter:]

Cash for clunkers is still welfare.

It's laundered bailout money. It's another abandonment of free market principles. It's still borrowing money we don't have to redistribute it to people who haven't earned it. It's still the pillaging and vandalism of thousands of potential collector and parts vehicles built after 1984. It's still a war on V8s and against grassroots motorsports (which depend on the sorts of "clunkers" that Welfare/Beer Bust King Obama, the environmentalists and the greedy public dole sucklings are destroying).

Ford vigorously campaigned for the CARS legislation, so they ARE benefitting from "bailout" money (i.e. Dealers get the CARS welfare vouchers they then spend to help buy the vehicles from Ford -- only the most myopic can't see that this is "bailout" cash to Ford)

A note for ThomasC: It is undisputable that the labor costs (including legacy costs) of the foreign "invader" assembly plants were far below the Detroit 3 before this crisis. How could UAW-assembled vehicles be competitive with "scab" vehicles assembled in "right to work" states for $1,000-$1,500 less per unit?

Regardless of one's position on the value of unions, the UAW clearly did not put the Detroit 3 on a level playing field with the invaders. The UAW failed to unionize the invaders. Nor did the UAW convince the American public to shun non-union "transplant" vehicles.

The invaders thus set the "market price" for assembly labor and benefits. The pre-crisis UAW "pattern" contracts exceeded the market price for assembly labor. Moreover, it's been widely reported that UAW work rules also put the Detroit 3 at a considerable disadvantage to the "Japanese" way. You may not like these facts, but they are the harsh reality.

Jul 30 11:51 AM

[spald_fr:]

A nation that destroys perfectly good cars, and taxes the public $4500 each time it does so, in order to diminish a “global warming” that doesn’t exist, is a nation that has clearly lost its mind.

Jul 31 03:08 PM

[RD Thompson:]

Amen


On Jul 30 09:49 AM update wrote:

> Obama's socialism.
>
> GM and Chrysler cost me and my grandchildren $100 billion dollars
> so what better than I buy everybody's clunkers for $4500?
>
> Maybe I should pay for other people to have all the health care they
> want.
>
> Maybe I should pay Obama a trillion dollars for a fake 'stimulus'
> package.
>
> Maybe I should pay for Obama's Cap and TAX scam so Goldman Sachs
> can be rich and the citizens of this country will be ripped off through
> their electric bills, at the gas pump, and well everywhere they need
> any product or service which required manufacturing or transportation.

Jul 31 03:29 PM

[frosty:]

What a fantastically successful program that takes taxpayer money to give to other taxpayers to buy cars from companies that are owned by taxpayers. (OK, it's true, companies other than GM and Chrysler can sell also.) Six days and the money is all gone!

Already congress thinks we need another couple of billion. If the program gets any more successful, Goldman Sachs will figure out a way to buy up all CARS credits, securitize them for resale, and give their people another nifty way to enhance their bonuses. Then we'll know for sure that the program has been successful.

Jul 31 03:56 PM

[Fighting Yoda:]

This program is essentially totally flawed, it simply encourages bad behavior all through:
- debt strapped consumers will incur more debt
- automakers will continue making poor cars that can't be sold without subsidies,
- and of course the tax payer will end up footing the bill.

Jul 31 04:17 PM

[cosifan:]

Anytime I read that "global warming doesn't exist" or some such statement, I know I am in the presence of a true idiot.

Jul 31 07:09 PM

[docmike:]

You are in your own presence, sir.


On Jul 31 07:09 PM cosifan wrote:

> Anytime I read that "global warming doesn't exist" or some such statement,
> I know I am in the presence of a true idiot.

Aug 01 01:59 AM

[Paul Price:]

Now with Cash for Clunkers we can pay for our neighbors' cars and mortgages. What's next?

Aug 01 07:27 AM

[saltydog:]

don't get me wrong,the things that this administration is doing are highly questionable.
please tell me who some of you have in mind to vote for in 3 years?
i cant hear you !!!

Aug 01 02:18 PM

[Buckoux:]

"....the Detroit health care behemoths that produce cars as a sideline."

An interesting use of words in the second paragraph. There are similar paradoxical comparisons of the ridicularity of existing social, political and commercial relationships. First to mind, for this Californian, are public employees, and their unions, whose main contribution of their public service is to bankrupt state treasuries with their egregiously generous pension and benefit packages. Just as with GM and the United Auto Workers Union, will CalPers, the California Public Employees Retirement System, ironically, bankrupt California?

Second: "Banks to big to fail". Or is the rest of our society, political, personal, commercial and moral, just too small to succeed? We are rife with contradictions in our daily communications. Simply, the world is full of bullshit! Including the politically correct notion that it doesn't stink.

Aug 02 02:25 PM

[John Erad:]

Ford is trying to do the right thing, and they actually
manufacture a product.
Maybe the banks should start doing the right thing and
get away from the Matrix style financial products.
Thanks.

Aug 02 03:31 PM

[mr freddo:]

I traded in my 95 Ford Explorer for a new Mercury Mariner. The new car cost me about 20k and was loaded with fun stuff like a satellite radio, nav, and back up radar.

The first lot I went to was the GM lot. I walked around the entire place looking at trucks and was left alone. Nobody came out to start the conversation. Strange.

My gut feel is that Ford is really starting to produce some interesting cars that can compete in the global marketplace.

GM is dead.

The cash for clunkers deal is a good one in that the average guy can actually claim some of the stimulus money for their own personal needs. Not that I am in favor of government handouts, but I have never seen a dollar of stimulus come back to the average consumer.

The problem with the program is that it did not go far enough. Once the billion or three is spent, will we be any better off in terms of our national consumption of gasoline? Hardly.

We have 150 million passenger cars in the United States. At 4500 per clunker, that's 666 thousand new cars with slightly better mileage. It won't make much of a difference.

What our government should do if it is serious, is offer $10,000 for clunkers traded in on cars that get at least 50 miles per gallon or run on electric power. It should fund the program with $500 billion.

When that program runs out, we should have 50 million new cars on the road that are getting 50 miles per gallon rather than 15. Instead of 150 billion gallons of fuel per year for passenger cars, we would use 115 billion gallons, a 30% reduction in gas usage.

Obama promised to get 1 million hybrids on the road by 2015 when he campaigned. A simple look at the numbers shows that the effect of 1 million hybrids is almost statistically insignificant.

Is this the change he was talking about?

For $500 billion, you would light up the midwestern states' economy like a Madam Larue pinball machine. In addition, we would be far better off strategically for the coming oil crunch and our declining usage of gasoline would send the right message to world markets and help keep the price of oil at reasonable levels for a few more years.

Sometimes you have to think big to think at all.

Aug 03 12:34 PM

[Logan Flatt:]

<"What we call GM actually trades under the name Motor Liquidation Co. and its symbol is MTLQQ.PK.">

Um, no, what we call GM is a privately held company, majority owned by the U.S. government that does not trade in the public markets and therefore has no ticker symbol. See this important SEC Alert from July 14, 2009 make us all aware of this: www.sec.gov/investor/a....

MTLQQ.PK is a shell company still being liquidated in bankruptcy court. All it owns is environmentally contaminated land, old shuttered plants of little economic use, a 9-hole golf course in New Jersey, and over $140 billion in debt and liabilities. Those illustrious assets will be liquidated for cash but will come nowhere close to paying in full the creditors the billions they are due. Since all creditors must be paid 100% in full before MTLQQ shareholders see a penny in recovery, each share of MTLQQ is intrinsically worthless. Why shares of MTLQQ continue to trade above $0.00 is any sane person's wild guess. Insane people, meanwhile, trade the stock.

Aug 27 01:26 PM