I’ve been saying since last fall that the Detroit Big Three should be left to their own devices – even to Chapter 11, if necessary. Government bailouts merely postpone the inevitable, as we’re now seeing with GM, which will probably end up in the bankruptcy court after all. As usual, government meddling has done no good and has probably made matters worse. Not to mention that $15 billion down the crapper.
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.
As a personal plug, I think that Ford has a great line of cars and trucks – the best in its history. I own a 2004 Expedition and I can say without hesitation that it’s the best vehicle I’ve ever owned.
Three cheers for Ford!