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GM has good reason to make risky decisions, since the taxpayers will likely be asked to support the company a second time if it runs into trouble. As a taxpayer

GM has good reason to make risky decisions, since the taxpayers will likely be asked to support the company a second time if it runs into trouble. As a taxpayer, I would like them to be as safe and stagnant as possible, but I have no say in the matter. This is the moral hazard created by the bailout.

ssmoot 11y ago
Ford was in bad shape in 2006. Does anyone even remember the Ford of 2006? With their awful Focus when everyone was clamoring for the euro version? Or the Ford 500? They didn't avoid a "bailout" because they were a strong company. Two years earlier they mortgaged everything (including the iconic blue-oval logo) while money was still cheap. It was pure luck. Not strength or some sort of moral superiority. So by the time the crash rolled arounds and GM and Chrysler couldn't do the same, Ford had already secured over $25 billion in funding, with another $5 billion in government loans to refresh some factories to produce greener cars. I'm not trying to argue GM or Chrysler did or didn't "deserve" a bailout. It's just a pet peeve of mine that there's this revisionist aura around Ford these days. They sold Jaguar and Land Rover to Tata for $2.3B, about half what they paid, and significantly less than they've made since. They sold Aston Martin for about $1B (well, that one was probably not a bad idea at least). They also sold Volvo for another $1.5B. They liquidated their stake in Mazda to the tune of about $500M dollars. Discounting the F-series, Ford easily had the worst portfolio, and were in trouble years before the others. They sold off several brands at a significant loss for some quick cash. Not all of those were smart moves in hindsight and they lost their shirts on most. While Ford has taken government assistance, they've milked their amazing ability to avoid TARP by failing before everyone else for all it's worth. Will they be as lucky next time? What are they going to put into a $10B fire-sell next time? And will they be lucky enough next time to secure $25B in loans while the market money is still flowing? Will the government be handing out $5B loans to modernize factories? I guess time will tell, but I felt like the conversation could use a little balance.
- kbenson 11y ago
  This all points towards i being a market problem that the government tried to mitigate (which fits their narrative), not a problem specifically with GM being so bad it needed a bailout. If the market wasn't in the disarray from the beginnings of a recession (and IMO what might have well been a depression without intervention), then it's entirely possible that GM would have found enough investment from other sources to pull itself out of the problem (as you point out, Ford was able to do it a few years prior, and GM was able to do it with the government investment). Investors that think the government will bail out GM again just because they have in the past are betting money in a way that they're likely to lose. The important factor of the GM bailout wasn't GM, it was how the industry as a whole was doing, and how the financial markets were acting at the time. GM would have been the first of a set of dominoes that included most if not all the auto-makers due to their shared dependencies on the parts companies that would have went out of business (which Ford testified to at the time). The important thing here is the dominoes, not GM. They just happened to be the first one in line.
- rifung 11y ago
  I apologize if this is incorrect as the only bits I know are from my interest in cars and not finance, but I don't think it was completely luck that Ford decided to try to get money. From what I understand, they did all this because Alan Mullaly just took over as CEO and he wanted to cushion a potential unexpected event. At least that's what it says here: http://www.nytimes.com/2009/04/09/business/09ford.html?scp=5&sq=vlasic%20mullally%20debt%20ford&st=cse&_r=0 http://www.nytimes.com/2009/04/09/business/09ford.html?scp=5... As far as I can tell, Alan Mullaly is a very good CEO who many consider to be responsible for the comeback of both Ford and Boeing. I remember there were rumors he was even considered for the position of CEO of Microsoft. That being said, I don't think you could say it was completely luck.
  - ssmoot 11y ago
    It's always a mix. And is it luck or preparedness and foresight? Either way, there's a strong argument to be made that Ford was in very bad shape, and their timing in 2006 was amazing. Had they held out much longer there might very well not be a Ford today. This is an interesting article I just ran across, and suggests the fundraising actually predated Mullally: http://fortune.com/2011/05/25/fords-forgotten-man/ http://fortune.com/2011/05/25/fords-forgotten-man/ I dunno. Ford is looking a bit 90's Apple right now IMO. Product (outside of the F-series) seems a week point.
  - csours 11y ago
    I just finished reading American Icon by Bryce Hoffman. Ford realized they needed to change long before this; around 2001 (around the same time that Bob Lutz was preaching to GM). Bill Ford and Mark Fields were already planning to do many of the things that Mulally wound up doing. What Alan Mulally did was still incredibly amazing - he restructured the reporting structure at the top of the company, increased accountability, increased transparency, increased trust and made people deliver on the plans. He got people to surface their problems at the executive level, where before everyone hid the issues for fear it would be used as ammunition against them by fellow executives. Mulally emphasised the core brands, and in fact wanted to ditch ALL the brands except for Ford. He got Ford to bring over the European models that were far superior to their equivalents in the USA. He brought the Mazda product development model to Ford, where the engineers and designers sit in the same room. He sped up implementation of Global Ford Production System, patterned in large part on the Toyota Production System. He worked with the UAW to decrease legacy costs by funding the VEBA (UAW run healthcare fund) and trading worker concessions for promises to keep production in the USA. He worked with suppliers to decrease costs and increase supplier satisfaction. He reduced the number of dealers. When I say "he" did these things above, I mean he pushed for them. In almost all instances they were accomplished by other executives and team members. The discipline and planning were not luck; the timing was very lucky indeed.

ssmoot 11y ago

Ford was in bad shape in 2006. Does anyone even remember the Ford of 2006? With their awful Focus when everyone was clamoring for the euro version? Or the Ford 500? They didn't avoid a "bailout" because they were a strong company. Two years earlier they mortgaged everything (including the iconic blue-oval logo) while money was still cheap. It was pure luck. Not strength or some sort of moral superiority. So by the time the crash rolled arounds and GM and Chrysler couldn't do the same, Ford had already secured over $25 billion in funding, with another $5 billion in government loans to refresh some factories to produce greener cars. I'm not trying to argue GM or Chrysler did or didn't "deserve" a bailout. It's just a pet peeve of mine that there's this revisionist aura around Ford these days. They sold Jaguar and Land Rover to Tata for $2.3B, about half what they paid, and significantly less than they've made since. They sold Aston Martin for about $1B (well, that one was probably not a bad idea at least). They also sold Volvo for another $1.5B. They liquidated their stake in Mazda to the tune of about $500M dollars. Discounting the F-series, Ford easily had the worst portfolio, and were in trouble years before the others. They sold off several brands at a significant loss for some quick cash. Not all of those were smart moves in hindsight and they lost their shirts on most. While Ford has taken government assistance, they've milked their amazing ability to avoid TARP by failing before everyone else for all it's worth. Will they be as lucky next time? What are they going to put into a $10B fire-sell next time? And will they be lucky enough next time to secure $25B in loans while the market money is still flowing? Will the government be handing out $5B loans to modernize factories? I guess time will tell, but I felt like the conversation could use a little balance.

kbenson 11y ago
This all points towards i being a market problem that the government tried to mitigate (which fits their narrative), not a problem specifically with GM being so bad it needed a bailout. If the market wasn't in the disarray from the beginnings of a recession (and IMO what might have well been a depression without intervention), then it's entirely possible that GM would have found enough investment from other sources to pull itself out of the problem (as you point out, Ford was able to do it a few years prior, and GM was able to do it with the government investment). Investors that think the government will bail out GM again just because they have in the past are betting money in a way that they're likely to lose. The important factor of the GM bailout wasn't GM, it was how the industry as a whole was doing, and how the financial markets were acting at the time. GM would have been the first of a set of dominoes that included most if not all the auto-makers due to their shared dependencies on the parts companies that would have went out of business (which Ford testified to at the time). The important thing here is the dominoes, not GM. They just happened to be the first one in line.
rifung 11y ago
I apologize if this is incorrect as the only bits I know are from my interest in cars and not finance, but I don't think it was completely luck that Ford decided to try to get money. From what I understand, they did all this because Alan Mullaly just took over as CEO and he wanted to cushion a potential unexpected event. At least that's what it says here: http://www.nytimes.com/2009/04/09/business/09ford.html?scp=5&sq=vlasic%20mullally%20debt%20ford&st=cse&_r=0 http://www.nytimes.com/2009/04/09/business/09ford.html?scp=5... As far as I can tell, Alan Mullaly is a very good CEO who many consider to be responsible for the comeback of both Ford and Boeing. I remember there were rumors he was even considered for the position of CEO of Microsoft. That being said, I don't think you could say it was completely luck.
- ssmoot 11y ago
  It's always a mix. And is it luck or preparedness and foresight? Either way, there's a strong argument to be made that Ford was in very bad shape, and their timing in 2006 was amazing. Had they held out much longer there might very well not be a Ford today. This is an interesting article I just ran across, and suggests the fundraising actually predated Mullally: http://fortune.com/2011/05/25/fords-forgotten-man/ http://fortune.com/2011/05/25/fords-forgotten-man/ I dunno. Ford is looking a bit 90's Apple right now IMO. Product (outside of the F-series) seems a week point.
- csours 11y ago
  I just finished reading American Icon by Bryce Hoffman. Ford realized they needed to change long before this; around 2001 (around the same time that Bob Lutz was preaching to GM). Bill Ford and Mark Fields were already planning to do many of the things that Mulally wound up doing. What Alan Mulally did was still incredibly amazing - he restructured the reporting structure at the top of the company, increased accountability, increased transparency, increased trust and made people deliver on the plans. He got people to surface their problems at the executive level, where before everyone hid the issues for fear it would be used as ammunition against them by fellow executives. Mulally emphasised the core brands, and in fact wanted to ditch ALL the brands except for Ford. He got Ford to bring over the European models that were far superior to their equivalents in the USA. He brought the Mazda product development model to Ford, where the engineers and designers sit in the same room. He sped up implementation of Global Ford Production System, patterned in large part on the Toyota Production System. He worked with the UAW to decrease legacy costs by funding the VEBA (UAW run healthcare fund) and trading worker concessions for promises to keep production in the USA. He worked with suppliers to decrease costs and increase supplier satisfaction. He reduced the number of dealers. When I say "he" did these things above, I mean he pushed for them. In almost all instances they were accomplished by other executives and team members. The discipline and planning were not luck; the timing was very lucky indeed.