Automobiles

Ford vs. GM and the Auto Bailout Experiment

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Public policy rarely offers opportunities for anything resembling a controlled experiment. But the auto bailout comes close to one. And President Obama should pause and ponder its results thus far before he makes the alleged post-bailout success of GM the centerpiece of his re-election campaign. 

Most people would agree that any reasonable definition of success for a company that has received a $65 billion-infusion in taxpayer money shouldn't just be whether it has stopped bleeding red ink for a few years. Heck, even Mike Tyson might have maintained a positive bank balance for a while after this kind of moolah. Success should be defined as whether the aid has positioned the company to compete successfully in the marketplace, something that I recall President Obama himself said when he forked over the money.

By this definition, compare the results of Ford and GM for the last quarter. Both are based in Detroit. They face similar taxation levels. Are saddled with similar labor union issues. But GM received a bailout and Ford didn't. Yet, according to a recent Wall Street Journal story:

  • GM made $1,962 on every vehicle it produced in North America during the first quarter of this year. Ford, by contrast, made $3,150, a third more per vehicle.
  • GM's North American operating profit rose 31% to $1.7 billion with margins improving to 7 % from 5.6% a year ago. Ford's profits, rose 16% to $2.1 billion, giving it a profit margin of 11.5 %.
  • GM's U.S. market share fell nearly two percentage points from a year ago, to 17.2% whereas Ford's fell about 0.8 to 16.8%.

In other words, Ford made $800 million more than GM despite the fact that it has a smaller market share and has major debt-service costs that GM doesn't because its bailout from Uncle Sam came in the form of equity, not a loan.

Why is Ford doing better than GM? Essentially, because it is far ahead of GM in reducing its global "platforms." This means that it'll be able to assemble more cars on fewer platforms, cutting its manufacturing costs and boosting its efficiency. This has allowed it to re-design its most profitable product, the gas-guzzling, greenhouse-gas emitting F-series pick up trucks that libs hate but American car drivers love. GM's redesign of its comparable products, GM's Silverado and GMC Sierra pickups, by contrast, is languishing.

But the good news is that the GM has made giant strides in perfecting the spontaneously combusting, Obama-pet Chevy Volt. So what if it has sold less than 8,000 units even though  buyers get a $7,500 tax break courtesy of Uncle Sam on their first Volt? Its sales are irrelevant, insists former GM products head Bob Lutz maintains. What matters – and what Volt's benighted critics are ignoring, as per Lutz– is that the Volt is the "most technologically advanced car on the planet."

Yeah, and so was the Telharmonium when it was built. Remember that one? No? I didn't think so.

I don't have a problem with technology for technology's sake or art for art's sake – but, for Pete's sake, let GM build its useless white elephants on its own dime.

NEXT: Government Encourages Hospital Consolidation, Sues Hospitals for Consolidation

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  1. The Volt being a Government pet is only half-true I believe.

    The Volt was supposed to be the ‘leapfrog’ vehicle that would vault GM over Toyota Prius in hybrid game a good year or two before wheels came off GM (pun intended).

    Now, the green-slimers have been all about Voltage of course. But me thinks GM has used Volt to sucker them right back. The numbers they quote for MPG, its neutered not-getting-laid-tonight look, all appeal to the eco-weenies in power today. And GM has whored that car like no other to that crew.

    As for trucks, GM fortuitously had re-done their ladder-framers into GMT-900 spec for 2007, so they make a very good vehicle already in the cash-cow side of the business.

    And, as side-note, has anyone ever noticed that lefties who love unions drive foreign cars but the red-state union haters drive American cars? Dissonance there is strange.

    1. Not just foreign cars, but European cars. Big difference. Libruhls love a car built by a semi-nationalized company in a quasi-socialist country.

    2. “has anyone ever noticed that lefties who love unions drive foreign cars but the red-state union haters drive American cars? ”

      Is this based on a poll somewhere? I’d be interested in knowing more about it, as it would indeed be an interesting correlation.

      1. Hang out in Waxman’s district. Nobody drives an American car with these exceptions:

        Caddies with the V-badge.
        Pony cars and ‘Vettes.
        Big honking SUV’s.
        Tourists in rented Malibus, Cruzes, etc.

        The vast majority of auto-junk around here is foreign. ‘Foreign’ being a foreign make. There’s Camcords all over the place, BMW coupes, Benz SUV’s, Hyundais galore – all made by non-union labor in Ohio, Kentucky, and the South.

  2. I saw a Volt on the road on the other day and I wanted to ram it sooooooooo badly.

    Too bad I’m in a rental now.

    1. Its not like this is the first controlled experiment in this area, either.

      North v. South Korea.

      East v. West v. unified Germany.

      1. “North v. South Korea.”

        What’s the control here? One country is protected by our military umbrella while the other one has sanctions imposed up on it?

        1. The control is that they both started from the same place.

          One country is protected by our military, and one is protected by the Chinese military umbrella, so that still works.

          And, of course, the experiment is to run a more-or-less marketish economy open to world markets in one, and to run a closed, totalitarian society in the other.

          For purposes of the experiment, it doesn’t matter why one economy is open to world markets and one isn’t (although, if you care, most of the reason the Norks are in a closed economy is because their totalitarian masters want it that way).

          1. If you take a look at the military standoff, North Korea uses their own military whereas the South Korean has both their own AND the US military along the border. What’s more is, S. Korea can freely trade whereas N. Korea is blocked off from the most of the developed world. No one will question that these are factors that would create a disadvantage. I understand that your general point is that markets and more efficient than a centralized government trying to make market decisions–I don’t disagree with that. But your comparison is anything but controlled, and these comparisons are actually quite spotty.

            Cuba (also hampered by economic sanctions) is in much better position than many similarly-sized Latin American countries who have indeed bought into the free market mantras.

            1. HAHAHAHAHAHAH

              Cuba doing well?

              HAHAHAHAHAH

              1. Cuba (also hampered by economic sanctions) is in much better position

                Sure, just go ask all the Cuban immigrants in Miami. After they are done beating you senseless they will explain why you are wrong.

                Why are people STILL so stupid when it comes to free markets and capitalism? You would think after the graveyard filling socialist economies from the 20th century they would know better by now, but NOOOOO. Yet another generation will have to re-learn this lesson.

        2. In case you haven’t noticed, North Korea kinda sanctions itself more than anybody else.

          1. Yet another part of the very controlled test between North and South Korea?

            1. Yet another part of the very controlled test between North and South Korea?

              Yes. The giant isolated Confucian take on Jonestown that the DPRK makes is very much a product of their ‘system.’

  3. Very eloquent! Are the worldwide figures available? I think one of the selling points on the whole GM bailouts is that they are even selling cars to China. What do these side-by-side comparisons look like? And their $ made per North American vehicle; are these figures medians or mean? If GM is focusing more on small fuel efficient cars and Ford is still pumping out gas guzzling SUVs, then it stands to reason Ford is making better points. On the other hand, it also means GM is better poised for the future whereas Ford is looking at the short term gain. I have no idea if that’s the case, but I was wondering if you had this data.

    1. “The future” being 50 years after any currently manufactured vehicle becomes obsolete?

    2. On the other hand, it also means GM is better poised for the future whereas Ford is looking at the short term gain.

      Methinks you are assuming the future lies with small, fuel efficient cars. It may, but it may not. And if it does, that may well be because of governmental meddling reducing the oil supply and mandating artificial mileage requirements.

      1. You are correct. Maybe it will and maybe it won’t. Time will tell. But the question I was raising: Perhaps GM is prepping for the future (even if they are wrong about what that future is) whereas Ford is more focused on the short term (something that got GM in trouble to begin with).

        Also, keep in mind that one of the reasons the Japanese car companies have been kicking ours around have been their superior fuel efficiency standards. These are standards imposed by their own government.

      2. Even if it does lie with small, fuel efficent cars, there is no guarantee that GM’s present designs will be the ones that prosper. There are plenty of precedents for companies that developed a technology for a purpose only to be beat out by a later, better technology.

        Further yet, there have been plenty of cases where companies have pioneered a specific technology only to have others using the same technology beat them out of the market.

        1. Understood. Nothing is for certain and I don’t even know if THAT’s what happening. I’m just interested in knowing the possible reasons for the disparity in per-vehicle profit and unlike a few others on here, don’t revel in seeing failure of a company just to satisfy my own ideology.

    3. I think one of the selling points on the whole GM bailouts is that they are even selling cars to China.

      You hit on a good point Cashless Money. GM’s future – indeed GM’s future – is in China. You think they kept Buick around (and axed Pontiac) for domestic considerations? Nope. Fact is, Chevrolet and Cadillac are only brands GM has worth keeping around in USA. Everything else is corporate window-dressing and keep lawsuits from dealers at bay.

      Buick will be Chinese brand more than American ten years from now, or dead altogether.

      1. ZeitGeek,

        So in the interest of staying on topic:

        If the American market continues to shrink for American auto makers due to foreign competition, it seems that foreign markets, it seems that emerging foreign markets provide an opportunity for further growth, especially in a country with over 3 times our population.

        We’ll see who continues to gain market share over one another here in the US. But with all of the scare over people buying Chinese products, it seems to me that the prospect of selling American products to China would receive welcome.

        1. Buick doesn’t sell any cars in China not made in China, fool. Why would Chinese guy pay three times as much to own a foreign version of a car made down the road? Duh.

  4. Very eloquent! Are the worldwide figures available? I think one of the selling points on the whole GM bailouts is that they are even selling cars to China. What do these side-by-side comparisons look like? And their $ made per North American vehicle; are these figures medians or mean? If GM is focusing more on small fuel efficient cars and Ford is still pumping out gas guzzling SUVs, then it stands to reason Ford is making better points. On the other hand, it also means GM is better poised for the future whereas Ford is looking at the short term gain. I have no idea if that’s the case, but I was wondering if you had this data.

    1. GM still does same thing they did six years ago: Take a loss on the little cars and book the CAFE credit to sell their fat SUV’s.

      They make all the money on the SUV’s, just like before they went belly-up. And when gas prices get too high to bear to keep SUV’s moving off the lot GM will fall down again.

      And don’t tell me how everyone will go buy Volts instead. You can buy two Prii for one Volt (or a Lexi-Pri with lock-washers and leather), and still get fat tax cred – for just as much car if not more.

  5. It looks Ford seriously trails other auto makers when it comes to other large markets. As of 2010, GM sales in China were up 28%. In a day and age with so much paranoia over Americans buying Chinese (and other foreign products) shouldn’t we be excited that GM products are doing so well China and other large foreign markets?

    http://www.marketwire.com/libr…..ng_800.jpg

    http://topforeignstocks.com/wp…..shares.gif

    1. I could not care less how well GM does in China. Actually, that’s not quite right. Since they picked my pocket, I hope they crash and burn spectacularly.

      1. Chinese making Buicks for Chinese people. Your tax dollars at work!

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  7. Lets also not forget that as part of being Government Motors, GM is not paying tax for the next 20 years. Something that Ford have to content with.

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