Bailout Fail: Ford Drops Debt, while GM and Chrysler Flounder

Posted April 7th, 2009 at 8.33am in Enterprise and Free Markets.

After months of pressure from the federal government to push down General Motors’s and Chrysler’s debt loads, a deal remains far out of reach. With the promise of further federal bailouts, no debt-holders wants to make concessions—accepting just 30 or 40 cents on the dollar, and much of that in possibly worthless stock—when holdouts could wind up paid in full.

Bailout-free Ford announced yesterday that investors agreed to swap nearly $10 billion dollars in its debt for cash and stock, reducing its total debt burden by 28 percent. The price: about 38 cents on the dollar. After the late-afternoon announcement, Ford stock rallied, gaining 16 percent.

Without a government backstop, Ford could argue credibly that its debt-holders would take a beating if the company were forced to file for bankruptcy. But that seems increasingly unlikely: Ford’s prospects have been looking up, as car-buying consumers flock to the only Detroit manufacturer that hasn’t taken taxpayer dollars. In any case, without the uncertainty of government financing, Ford’s debt-holders were able to put a firm value on its bonds and then choose whether or not to accept the automaker’s buyback terms.

Its rivals’ creditors, locked in a game of chicken with the federal government, cannot. The result is a stalemate that’s impeding GM’s and Chrysler’s turnaround plans—another cost of doing bailouts instead of straightforward bankruptcy.

26 Comments

April 7, 2009 Ozzy6900, CT writes:

This just proves that Capitalism works and Government Bail Outs do not!

April 7, 2009 Brad Raffensperger, Alpharetta, GA writes:

Bravo, Ford! I only have 72,000 miles on my F-150, but I fondly anticipate the day when it is time to trade in my truck for another Ford. Your new cars have great curb appeal. You’re on the right track. It’s great to see an American company get its groove back. Well done!

April 7, 2009 Jason, Tenafly, NJ writes:

This makes me want to trade in my Suburban! G-d Bless the guys at Ford for being SHINING EXAMPLES of capitalism.

April 7, 2009 NELSON GONZALEZ,FENTON,MI writes:

AS A RETIRED GM EMPLOYE AND A TRUE BELIEVER IN THE AMERICAN AUTO INDUSTRY,AND HOW WE SHOULD HAVE NEVER TAKEN THE SO CALLED BAIL OUT MONEYS, IT GIVE GREAT PLEASURE TO SEE THAT THE BOYS AT THE GLASS HOUSE STILL KNOW HOW TO RUN THE BUSINESS AND MAKE GREAT CARS.”THEY STILL HAVE A BETTER IDEA”

April 7, 2009 Steven Oracle Palm Springs CA writes:

The Ford dealership here in Palm Springs seems to be doing well! Now to the Bailout. Since GWB and BHO were both involved, I will call it the Bush-Obama bailout. The Bush-Obama bailout policy seems to have succeeded in: (1) Converting two large corporations, GM and Chrysler, into toxic assets having uncertain value, (2) Making their products radioactive, i.e. too risky to own, (3) Dumping hundreds of billions on a bad idea with no second act. Hope? Nope!

April 7, 2009 Barb -mn writes:

Every business that gets GOVERNMENT HANDOUTS should MANDATE RECOGNITION to identify this under consumer and taxpayer notification. It’s our money, show us who’s getting it!!!! Including the food industry, farming (produce), restaurants. We as consumers have the right to know what and all businesses are being subsidized with our money (government sticker in the window, on the produce we buy, etc)so we can do everything in our power to avoid doing business with them and stick to the businesses with the integrity to take it on at their own will, doing what they can do make it on their own. (Without needing their hands held) we’re buying a ford!

Thank you Ford, for showing us where you stand and sticking to it!
We appreciate your strength and dignity.

April 8, 2009 Lynn B. DeSpain writes:

FORD has always had the better idea! Who in their right state of mind would ever want to wait at a DMV for Warrentee work?
Like a boat, if you have to stop and bail it out, its sinking and if you can’t fixiton the water-she’s going to sink. FORD is a self-bailing boat. Gives a person a sense of secuity and the Nation back some of its Pride!
Hozro

April 8, 2009 rich weirton writes:

I have never had much luck with Ford cars, but I guess my next car will be (gasp) a ford, because that is the only american car manufacturer left.
My one question is, how long will Ford be able to pay those outlandish union wages, and still stay afloat.
Americans will probably HAVE to buy import cars, because price of american, union made cars will be way too high.

April 8, 2009 Scott Hendricks writes:

I am wanting to know how can we find out what “debt loads” and what retirement funds of these companies attached themselves to the crashing stock market? Just how much of our tax payers money have gone directly to the survival of the Unions?
Only the government can say it can pay their dues forever. The government is the only 500 pound gorrilla giving away trillions to the world union and governments, diverted from the Americans that have their taxes go to the world.
Now, today, try and find out where the money went. Then I suggest going to your local government for those demands, let it be known that you took the time to demand some answers.

April 8, 2009 Al, Dayton writes:

last 5 cars were GM, next one will be FORD!!

April 8, 2009 June/NewMexico writes:

The Unions must be brought under control. Large contributions bring an expectation of payback and they seem to be getting a free pass from this administration.

Companies that took bailouts, willingly or not, are now finding out the price to be paid. And…whether bailouts succeed or not, the taxpayers are still on the hook. It is astounding that in less than 90 days our nation has been crippled by a deficit we cannot pay.

April 8, 2009 M.L.P. Bellingham, Washington writes:

Ford is exhibiting the American principles which has seen us through many difficult problems the U.S. has faced through its creation. Our present financial difficulties is being made more difficult by our government excessive spending and intervention, they are becoming more the problem than any potential solution.
Let us go back to our American “roots”, pull up our determination, tell the government to back off and let the people dig the country out and back to freedom and the pursuit of happiness.

April 8, 2009 Matt, Atlanta, GA writes:

I think in this case, it should be “founder” rather than “flounder.” They’re not flopping around, they’re sinking.

April 8, 2009 david/Virginia writes:

Went to local Cheverolet dealer to price new chev camaro. Salesman said they only have few coming in and price will be a minumum $2400 over M.S.R.P. Greed on top of greed!! No sympathy for cheverolet here!

April 8, 2009 Jerome Zacny writes:

One can’t help but smile. The folks at Ford are looking like geniuses for telling the Feds ‘thanks, but no thanks’. Perhaps it’s too much to hope for, but just maybe, there are some folks out there learning what happens to those who take money from the Feds and those who don’t.

GM will most certainly fail. What remains to be seen is how much more taxpayer money Mr. Obama will give them before they inevitable file for reorganization under Chapter 11. Right now, not many Americans are buying cars. But the ones who are buying are not looking at GM. When the bulk of car owning Americans must replace their vehicles, you can be certain they won’t be looking at GM or Chrysler, due to the uncertainty of these companies being able to live up to their warranties.

The GM C.E.O. should have told the Feds the same thing Ford did,even if it meant Chapter 11. If he did, he would most likely still have his job.

April 8, 2009 T.D. Mac, St.Paul MN. writes:

I’m just glad I bought FORD several weeks ago and I plan to sit on it for a long while! The way these FORD guys are leading their company, it will only go up..and up! As for the GM/Chrysler duo all I can say is I hope you enjoyed the ride while it lasted!

April 8, 2009 Pat Williamson writes:

Look at how many times Indian motorcycles has been revived from the dead. I think 5 or 6 times, and they are alive again today. Let the market (and courts) dictate how and if GM (or Chrysler) will survive…put the unions into a reality check, and let the taxpayers choose. If they come back with a lean reorganization plan, and build a quality product, americans will buy. How hard is that to comprehend?

April 8, 2009 Carole,Dallas writes:

People! What have we learned? Do not re-elect Obama! If there’s a country left by then, do not re-elect more of the same! Everyone needs to read the constitution again, as the powers that be haven’t and don’t have a clue. If you do not want a socialist or communist country, go to a T.E.A. party on 4/15.

April 9, 2009 Jim - Utah writes:

Been a Ford and Toyota owner for years. Had a Corvette in my younger days and aside from the power and fun, it spent more time in the shop, than on the road. I learned my lesson about GM then and will never (yes I said never) go back to them again. Well done Ford, although I’m very happy with my new Toyota, I will seriously look at another Ford product when I’m ready to buy again.

April 9, 2009 Claude Cornell writes:

I would hope that the American consumer could learn a lesson from all this. We did not support the clothing industry when we could have and we lost it to China. We did not support the shoe industry when we could have and we lost it to China. The same thing was happening to the auto industry. The Japanese now are on top of the American auto industry. GM and Chrysler will never be competitive again. How long do you think it will take them to pay back 16 billion dollars worth of loans. That will suck up all their profits for the next 25 years. In other words, they will never get out from under the control of the government. With all the hair-brained ideas coming out of the Obama adminstration now days what do you think GM’s future cars will look like ?

April 10, 2009 Hooray for Ford! | Behind Blue Lines writes:

[...] been able to do to restructure itself without government ‘assistance’. From the Heritage Foundation blog, via the Wall Street Journal: After months of pressure from the federal government to push down [...]

April 12, 2009 Paul, FL writes:

To Rich Weirton - You took the words right out of my mouth.

April 13, 2009 Fracis writes:

Ford also has it’s legacy costs, and cannot really continue to rally the troops long term. It was the first to rely heavily on IMPORTED parts, and now is the most foriegn of the U.S. brands, with most lines being over 50% from overseas. It isn’t saying NO to bailout money because it doesn’t need it, it is wanting to avoid government involvement at all costs. There are BILLIONS of dollars in unsettled lawsuits for product defects, and probably a million unsafe vehicles out there that should be recalled. People are dying everyday, and the coverup is red tape. I have always bought American, but Ford is a Unamerican sheep in wolf’s clothing.

April 14, 2009 pennsylvania writes:

Fracis, you sound bitter…you dont by any chance work for GM?

April 18, 2009 dan; Nova Scotia writes:

I just bought a new F150 for my business, and my wife bought an 07 explorer in Nov. Ford is a reliable North American auto maker; best prices; and teriffic service at local level.I have owned Dodge, Chevrolet, and Mazda products. Ford has been the overall least expensive and most reliable of the bunch; glad they will be around for years to come.

June 7, 2009 ObamaCare Plan Released « America, You Asked For It! writes:

[...] of the American economy in one fell swoop. It would be a huge feather in his Socialist cap. Ford Motor Co. is the only thing standing in his way of total federal control of the auto industry, which [...]

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