Car Allowance Rebate System: Ford Bounces Back

Includes: F, MTLQQ
by: Jim Delaney

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 (NYSE: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 OTC:MTLQQ. 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.