Don't Tread on Ford

The legendary Ford Mustang is not named for the horse. It is named in honor of the P-51 Mustang, the legendary American World War II fighter plane. The fighter plane inspired the car's design with speed and the bubble canopy which provided an advantage due to a 360 degree view. The increased field of view enhances what pilots call "situational awareness."

Awareness of the situation around you can be the all that stands between success and ruin. Reacting to the situation also requires a framework to help decide what action to take in the midst of uncertainty.  This framework is also key to success. Pilots might call this framework "training" or "experience."

In America we have a  framework for success. Our framework has created telephones, cars, medical cures, nuclear power, airplanes, moon landings, and built America into the world's super power. Ford recently found itself relying upon it's situational awareness and historic corporate framework. The company engaged in a struggle for it's very existence.

In 2006's Ford ranked third among the three American car companies in financial stability. It needed to renovate and increase liquidity. Ford Shares were hovering around $8 per share. In 2005, Ford lost it's investment grade status. It was racking up billions in losses as the SUV boom went bust due to rising gas prices and the end of the housing boom and easy credit. The economy and Ford were shaking and the situation required a decision.

CEO Bill Ford fired himself and hired Alan Mulally from Boeing to manage a "giant home improvement loan" -- to close plants, shed brands and cut its global workforce by one-third. Funding was acquired from Citigroup Corporate and Investment Banking, Goldman Sachs Credit Partners, and J.P. Morgan Securities in the amount of $18 billion. The influx of cash helped Ford to revamp its cars and trucks and, unlike rivals GM and Chrysler Group, avoid bankruptcy protection. How was so much money given to the troubled company?

Ford laid all of it's assets on the table. Ford had to back its promise to repay that debt with collateral such as its property, U.S. automotive assets, Ford Motor Credit Co. and Volvo stock, and up to $4 billion of cash. In 2006, Ford went all in.

The iconic Ford logo itself, valued at $7.5 billion by Interbrand, was put on the table.

It took something that "the home of the brave" has in short supply recently, courage. It took the capitalist spirit of betting on yourself.

With the election of progressive President Barack Obama, Ford stock plummeted to $1.81/share by January 2009. The Automotive Industry Financing Program, created under the Troubled Asset Relief Program (TARP), provided $79.69 billion to GM, GMAC and Chrysler. Ford refused the bailout:

Ford is "in a different place and much further along" than the other two Detroit automakers, Mullaly said. Although it is seeking a $9 billion line of credit from the government, Ford is not part of the $17.4 billion bailout for GM and Chrysler, which comes with the requirement that the two companies show how they can reduce costs and debt, Still, "from ongoing conversations we're having with all the stakeholders and the U.S. government, we will not be disadvantaged," Mullaly said.

The DOE reported in June, 2009:

Ford Motor Company will receive $5.9 billion in loans through 2011 to help finance numerous engineering advances to traditional internal combustion engines and electrified vehicles.

This money was not related to TARP and had been part of negotiations starting in December 2008.

Ford loans totaled around $23 billion, with no "too big to fail" protections and without big government intervention. Critics pointed to TARP bailout protections from the UAW secured for GM and Chrysler. They claimed Ford to be the UAW's only remaining profit center and that negotiations would be brutal.

The critics were wrong. The UAW voted overwhelmingly for the Ford Agreement. The company turned around drastically in comparison to Chrysler who was sold to Fiat, and General Motors which now requires government loans to pay back older government loans. Ford is now the most financially stable American automaker. Ford stock is currently trading at $10.60 or 26.5% higher than at the beginning of the retooling.

BusinessWeek wrote in "Ford to get blue oval back after second upgrade" (May 2012):

Ford Motor Co. is getting its blue oval logo back.

Moody's Investors Service raised Ford's debt ratings to investment-grade Tuesday for the first time in seven years. The upgrade means that all of Ford's U.S. assets, including factories, the blue oval and the trademarks for the F-150 pickup and Mustang sports car, are back in the company's hands and will no longer be used to secure the company's debt.

The company has approximately $20 billion in cash, and it has been disciplined about cutting costs, controlling production and lowering spending on incentives, Moody's said.

When the executives at GM and Chrysler took the bailout and retired to their country clubs, Ford fought to survive. Government solutions are no match for the will to survive. When the will to survive is paired with experience and situational awareness, when the heart and the mind align, anything is possible.

In the words of the September 2011 Ford advertisement pulled due to White House pressure:

I wasn’t going to buy another car that was bailed out by the government. I was going to buy from a manufacturer that’s standing on their own: win, lose, or draw. That’s what America is about is taking the chance to succeed and understanding when you fail that you gotta’ pick yourself up and go back to work.

Cash for Clunkers Continues with CARB's VAVR Program

Bloomberg/Businessweek is reporting a surge in new car sales:

Light-vehicle sales in December, set for release tomorrow, may have run at a 13.4 million seasonally adjusted annual rate, the average estimate of 14 analysts surveyed by Bloomberg, up from the 12.5 million pace a year earlier. While the rate may trail the 13.6 million seasonally adjusted pace in November, typically a slow sales month, the number of units sold increased in December, according to the average of five estimates.

They have failed to report the fact that many low income consumers are now without transportation. Cash for Clunkers is still alive and well in California as Voluntary Accelerated Vehicle Retirement (VAVR). The misconceived program makes vehicles unattainable for young and low income people. VAVR also pushes middle income people into debt for new cars with the cost of adherence to environmental regulations combined with large cash incentives.

The State’s recently enhanced Consumer Assistance Program (CAP) was developed by the ARB in consultation with BAR and provides $1,000 per vehicle and $1,500 for low-income consumers for unwanted vehicles that have either FAILED or PASSED their last Smog Check Test. (CA.gov Car Scrappage webpage)

Maybe I need a second pair of eyes on that sentence; does it read $2500 for a clunker? (UPDATE) Thank you for helping resolve this conundrum, it is $1000 or $1500 per this application.

The VAVR program uses tax money to remove fully functional and smog compliant vehicles from the road. The California market is gentile on used cars due to the favorable weather. Southern California has the best climate in the country and many of the region's cars and light trucks gain a greater operational life than vehicles from colder, saltier and more humid climates. Regardless, our environmental overlords have decided that the back of a bus is better suited to low income citizens.

...monetary or other incentives to vehicle owners to voluntarily retire their older, more polluting vehicle. (CA.gov VAVR webpage)

This is a program that trickles down to every used car consumer in America because the "retired" vehicles are dismantled.  (A list of "auto dismantlers" can be found on this FAQ sheet.)  Here is a quick list of the immediately foreseeable negative consequences of this policy:

• Hinders employment for those who cannot find cheap reliable transportation. 
• Spawns a new breed of exploitative scams against the old and low income. 
• Wastes scarce tax money.
• Calls for higher taxes to pay for "firemen, police and teachers" when the real problem is wasted money.
• Falsifies economic indicators as the choices to purchase used cars are reduced.
• More union money stolen from consumers and "redistributed" into politician's back pockets.
• Class warfare exacerbated as poor and old are left even more dependent.
• More pollution as smog compliant vehicles are "dismantled" leaving low income people with bad alternatives.
• Increased pollution as a few more coal powered, toxic-battery powered electric vehicles are pushed into service.
• Increased human misery as more people are forced into illegal, immoral and undignified behavior.
• Price gouging for new and slightly used cars due to lack of alternatives
• That's enough for now...but more in-depth analysis is available from Beers with Demo.

This is more fascism attributed to the blind environmentalist cult known commonly as progressives. Maybe we should redefine this as Mayan Economics, in honor of 2012.