Can Ford afford not to declare chapter 11? Can they compete when the other two have had a significant portion of their debt wiped?
I know that they have not had to accept the government bailout money, and are in general more sound financially, but won’t they, in the end, have to declare Chapter 11 to try and stay competitive?
(I struggled with where to put this. I don’t think we can say there is a factual answer (although I’m willing to admit I’m wrong on that), so it was either IMHO or here. I decided here because -although I don’t debate myself - this has been the place for most of the other discussions on the car companies.)
Hard to say. I do know that a very conservative local bank here is making out like a bandit right now - people have known for years that they didn’t deal in exotic securities and were in general very cautious. When others started to fail they attracted massive amounts of capital.
ISTM that Ford might be positioning itself similarly, saying that the needed focus on small cars and hybrid drivetrains had already been made prior to the current crisis. Also, any concessions GM and Chrysler squeeze out of the UAW ought to be available to Ford for two simple reasons - the UAW generally used gains from one auto maker in negotiations to press for equivalent gains from others in contracts, and the fact that the UAW now holds a stake in both other companies could lead to charges of an unfair labor practice if it does not treat Ford fairly.
I have never owned a Ford before, but if I were to buy a new vehicle tomorrow, Ford would be the only brand I would even consider specifically because they haven’t taken bailout money or filed Chapter 11. I can’t be the only one.
Just a couple years back FoMoCo had a bank account bulging at the seams. The rainy day came and they, to an extent, were ready for it. And they have some nice cars. Car and Driver just picked the 2010 Mustang over the new Camaro and Challenger, though it gives up 100bhp.
FTR, I was raised a Ford Man. I stepped out of the fold a couple times and got screwed for it. Of course, at those times I never bought a Toyota nor a Honda. I’m in the market for something in a Mustang, though my wife will grab it, claiming it to be “a girl car.”
You aren’t. Ford’s popularity and satisfaction numbers are skyrocketing. Ford just moved ahead of Toyota in market share, and it’s increasing production.
What remains to be seen is how much advantage GM gets from being owned by the government, and how level the playing field will remain.
Being owned by the government is one reason I thought of - concessions by the UAW was another.
I don’t know what will shake out of Chapter 11, but I keep hearing that many of the problems the automakers have are due to debt incurred from pension funds and health insurance for retirees. (I can’t claim to know if this is true BTW, these are the things I’ve been hearing for years though.)
Will that debt go away? If so, wouldn’t that put Ford at a disadvantage - theirs would not disappear and without Chapter 11 I don’t know how they could make it go away.
Part of the problem Ford will face is that once the government has sunk so much money into GM & Chrysler, they’re virtually obligated to keep subsidizing them going forward. So Ford essentially has to compete against the government bottomless pockets, which can very tough.
In addition, the UAW has a strong incentive to favor the other companies. Traditionally they’ve kept the playing field even, but this may not be the case going forword. (I’m curious about the “unfair labor practice” that Mr. Moto referenced.)
Conversely, the UAW could use its influence via ownership stake in the other companies to insist on favorable terms at those companies (propped up by government subsidies) and then insist that Ford match them.
Conflict of interest - if you own a company or companies but represent workers in another company, you have a conflict. Frankly, this exists right now - there is a pretty strong case for the UAW to be decertified in Ford plants and for another union to be voted in.
I think a strong case could be made for the Steelworkers - they have been a reasonably responsible union for the past few years and already represent many workers in the automotive industry.
Fiduciary Responsibility of Officers of Labor Organizations
(29 U.S.C. 501)
SEC. 501. (a) The officers, agents, shop stewards, and other representatives of a labor organization occupy positions of trust in relation to such organization and its members as a group. It is, therefore, the duty of each such person, taking into account the special problems and functions of a labor organization, to hold its money and property solely for the benefit of the organization and its members and to manage, invest, and expend the same in accordance with its constitution and bylaws and any resolutions of the governing bodies adopted thereunder, to refrain from dealing with such organization as an adverse party or in behalf of an adverse party in any matter connected with his duties and from holding or acquiring any pecuniary or personal interest which conflicts with the interests of such organization, and to account to the organization for any profit received by him in whatever capacity in connection with transactions conducted by him or under his direction on behalf of the organization. A general exculpatory provision in the constitution and bylaws of such a labor organization or a general exculpatory resolution of a governing body purporting to relieve any such person of liability for breach of the duties declared by this section shall be void as against public policy.
(b) When any officer, agent, shop steward, or representative of any labor organization is alleged to have violated the duties declared in subsection (a) and the labor organization or its governing board or officers refuse or fail to sue or recover damages or secure an accounting or other appropriate relief within a reasonable time after being requested to do so by any member of the labor organization, such member may sue such officer, agent, shop steward, or representative in any district court of the United States or in any State court of competent jurisdiction to recover damages or secure an accounting or other appropriate relief for the benefit of the labor organization. No such proceeding shall be brought except upon leave of the court obtained upon verified application and for good cause shown which application may be made ex parte. The trial judge may allot a reasonable part of the recovery in any action under this subsection to pay the fees of counsel prosecuting the suit at the instance of the member of the labor organization and to compensate such member for any expenses necessarily paid or incurred by him in connection with the litigation.
But this seems to be about individual officers of the union holding interests in entities with adversarial agendas. Here we’re discussing the union itself owning it. Logically you can see many of the same problems, but it might not be covered by the same law.
[Also, I’m not certain that the UAW itself is being given the ownership stake in the other companies. I suspect that it’s the VEBA trusts that are supposed to fund retiree medical benefits for workers at those companies. Those VEBAs are under the control of the UAW, but are probably distinct entities, which might also have legal ramifications.]
It was just noted in the paper the other day that every major car manufacturer has had sales go down (except maybe Hyundai) but of them, Ford lost the least.
So they seem to be okay, which is reason number… oh, I’m up to a billion now… why GM and Chrysler should never have been bailed out.
I can’t blame your reasoning. However some Americans/Canadians like myself would also consider that GM or Chrysler are the way to go because like it or not, we the people now own the company. The best case scenario would be for those companies to do so well that our governments can sell their shares in the future and recover our money. Buying Ford will only not help we the people in the same way.
Picked up our new Hyundai today. Maybe that doesn’t increase my stake in GM or Chrysler, but my primary stake is in my family and none of GM or Chrysler’s cars were as good.
Well, last weekend we swung by our local Ford/Mercury/Etc dealer to check out the bounce houses for the little one. I decided to spend some time looking at some cars even though the wife and I have cars that are both four years old and that we owe a grand total of about $1500 on, and I really liked the Ford Fusion.
So, they might get my business on the next new car I get…which admittedly should be in at least five more years.
You can’t just declare bankruptcy to get a more competitive position. You must show that you meet the legal standards for bankruptcy. For example, Chapter 11 is available
So if Ford is currently well-financed and able to meet its financial obligations as they come due, the fact that its competitors may have an advantage wouldn’t entitle Ford to declare bankruptcy.
As well, it can have drastic consequences for the shareholders:
As treis noted:
Since corporations owe a fiduciary duty to their shareholders to manage the corporation in the best interests of the shareholders, they can’t just declare bankruptcy to get a competitive advantage and hose their shareholders. They can only go into bankruptcy when it’s about the only option left, or when the creditors force them into it.
