The Ford Misconception

http://www.futureofcapitalism.com/2009/07/the-ford-misconception

In its article this morning reporting Ford's first-quarter earnings, the Wall Street Journal reports that the automaker "refused U.S. federal aid." Bloomberg refers to the company as "the only major automaker to shun a U.S. rescue." In this week's Weekly Standard, Fred Barnes writes of the difference between what he calls "politicized capitalism" and "market capitalism," explaining:

The two types of capitalism exist in stark contrast in the American auto industry. General Motors and Chrysler have survived thanks to billions from the Obama administration and forgiveness of billions more in loans and other obligations. GM and Chrysler are now wards of the federal government, which picks their CEOs, names their boards, and can tell them which cars to manufacture.

Then there's Ford, also a money loser in recent years. It turned down a government bailout and now must pay back its loans in full. Ford decided to compete in the marketplace for the preference of consumers, not in Washington for donations from government. It has one advantage: It's a private corporation free of government control.

One fact that all these articles omit about Ford: on June 23, 2009, the Obama administration announced that the company would get a $5.9 billion federal loan. The government estimates that these loans are subsidized at about 30%, that is, the difference between the government's cost of borrowing and what the companies (or other, non-politically favored borrowers) would pay on the free market. Only in the current extraordinary environment does this deal amount to "refusing federal aid," shunning a U.S. rescue, or turning down a government bailout. It's amazing, really, when you think about it.

by Editor  |  Jul 23, 2009 at 7:45 am Related Topics:  Auto Industry receive the latest by email: subscribe to the free futureofcapitalism.com mailing list