The writer, a Los Angeles freelancer and former Detroit News business reporter, writes a blog, Starkman Approved.
By Eric Starkman
Henry Ford famously said that “history is bunk.” Fortunately for the employees, dealers, and suppliers of the company he founded his heirs know Ford’s history and want to again avoid GM’s forever shame of landing in bankruptcy.
Alan Mulally (Ford Motor Co. photo)
The reason Ford didn’t require a taxpayer bailout in 2009 while GM did was because of a legendary aerospace engineer named Alan Mulally that Ford lured from Boeing in 2006 to run the company. That year, Ford reported a massive $12.6 billion loss and was fast fading in significance. Unlike too many American CEOs today, Mulally was a decisive leader who didn’t take direction from the Wall Street peanut gallery on how best to manage Ford to ensure its survival.
To secure Ford’s financial footing, Mulally orchestrated $23.5 billion in private loans using virtually all of Ford’s assets as collateral, including the company’s Blue Oval logo. Those loans, controversial and questioned by Wall Street at the time, allowed Ford to weather the 2008 financial crisis. Unfortunately, Ford was forced to support the bailouts of GM and Chrysler because the automaker feared that if those companies disappeared, it would irreparably harm its supplier network.
Still, Ford not only survived – it rebounded, posting a $6.6 billion profit in 2010. Mulally’s leadership is widely regarded as a case study in crisis management. Even today, Ford is widely respected for mortgaging its logo and avoiding a government bailout.
Lacked Vision
GM’s management lacked Mulally’s vision and caution.
In the years leading up to the company’s bankruptcy, GM squandered its capital paying generous dividends and buying back its shares, a legal form of stock manipulation that typically drives up share prices in the short term because there are fewer shares outstanding. Underscoring the myopia of share buybacks in a capital-intensive industry, GM shareholders were effectively wiped out when the corporate Grim Reaper came calling.
GM and Ford are again poised to face considerable headwinds in the years ahead and one must be a pie-eyed optimist to assume their futures are secured. The world is migrating to electric vehicles and China’s communist government has birthed an industry of automotive companies that can manufacture far more technologically advanced EVs at a considerably lower cost than GM and Ford. Ford CEO Jim Farley is among those who are blown away by China’s EV prowess.
Then there is the threat of President Trump’s tariffs. While I expect Trump will eventually cave, GM and Ford would be severely impacted if Trump demonstrates that he indeed has the resolve to follow through on his vision to restore and revitalize U.S. manufacturing. Despite being bailed out by U.S. taxpayers, GM is Mexico’s biggest vehicle manufacturer, and Ford proudly builds its electric Mustang, Maverick pickup and Bronco Sport south of the border.
Fortunately for Ford, Trump doesn’t sweat the details and is likely unaware that Ford’s engineering team outside of Mexico City is the largest in Latin America playing an increasingly critical role in the automaker’s worldwide operations. Ford also has more than 12,000 “business services” salaried employees in India and plans to add as many as 3,000 workers in that country.
Ford and GM are following their historical paths in the face of adversity.
Squirreling Away
Ford is looking to squirrel away as much money as possible to make it through the coming years. In the spirit of Alan Mulally, Ford has shored up its debt financing agreements to give the company more flexibility and stability.
Ford’s credit rating by S&P and Fitch is BBB-, the lowest rung above non-investment grade status, with a negative outlook. In a savvy move that was brilliant for Ford but highly questionable for U.S. taxpayers, the automaker weeks before Joe Biden left office finalized a below market $9.6 billion loan from Jennifer Granholm’s Department of Energy to finance most of the cost to build three battery plants in Tenneessee and Kentucky.
CEOs Jim Farley and Mary Barra
An AI analysis estimated the favorable loan could save Ford as much as $5 billion in interest costs over the life of the debt. Ford hasn’t yet trimmed its fat dividend yield, but the Wall Street Journal said it’s only a matter of time.
"Capital is going to be a tool that we have, because the strength of our balance sheet to be able to do these things and continue to invest in the business, so that in 15 years and 10 years, we are a global player that is going to be a force to be reckoned with,” Ford Vice Chair and former CFO John Lawler said at the recent Bank of America Securities Auto Summit.
“Because remember: We have an advantage. We have the ability to long-term, given our ownership structure in the (Ford) family, and they think about that, and that's a gift that we have."
Lawler, who has more than three decades of automotive experience, acknowledged that years of raking up huge profits might soon become the distant past.
"We have to think about joint ventures," Lawler said. "We have to think about partnerships. Maybe there'll be consolidation, but if something doesn't change, all of us can't do all of this on our own, especially with what has been our largest profit pools and cash generators in this industry over the last 10 to 12 years drying up." (emphasis mine)
Although GM is an anti-MAGA company that heavily uses foreign-made parts for even vehicles assembled in the U.S., the automaker so far doesn’t appear all that alarmed by Trump’s tariff rattling. Just weeks after Trump took office, GM announced it would spend $6 billion to buy back its underperforming stock, on top of the $16 billion it allocated for stock buybacks since the fall of 2023.
GM's Buybacks
Here's some perspective on GM’s $22 billion in buybacks: That is almost equal to the $22.7 billion China’s publicly traded companies collectively spent on stock buybacks in all of 2024. Toyota, which is three times more profitable than GM and sells twice as many cars globally, last year spent $8 billion on stock buybacks.
Despite GM’s aggressive buybacks, investors value Toyota at $281 billion – more than five times the valuation assigned to GM.
While GM in the U.S. pays lip service about wanting to support Trump’s efforts to bolster U.S. manufacturing, the company sings a different tune for its Mexican audience.
“At the moment, none of the models produced in Mexico are being stopped or transferred to the United States,” Adrián Enciso, the director of GM de México’s EV operations, told the Spanish-language newspaper, Milenio, and translated by the trade publication electrek.
While GM’s U.S. employees are bracing for layoffs, workers at the company’s Silao, Guanajuato, factory complex in Mexico recently clinched record raises averaging 10% that will lift most of them above Mexico’s poverty line after staring down GM scaremongering about tariff threats. It’s the second contract where GM agreed to pay a double digit wage increase to its Mexican workers.
“(GM) said, well, we’re offering six percent,” Norma Leticia Cabrera Vasquez, who leads the union’s Women’s Department and works at the Silao plant for 15 years, told Labor Notes, a union activist publication. “We knew they were going to show up with that, but we said, ‘We still have weeks to negotiate, so we won’t let that intimidate us.”
“(GM) always threatened to relocate, like back during the global economic crisis,” Alejandra Morales Reynoso, General Secretary of Mexico’s national auto union, told Labor Notes. “It would take years to transfer production. They’d need an installation like GM [Silao], a complex made up of six or seven plants, which would be a multi-million-dollar expense.”
Both GM and Ford are at a crossroads. If GM fails yet again, it would be outrageous if U.S. taxpayers are required to bail out the company given CEO Mary Barra’s decision to continue enriching herself and other shareholders instead of taking measures to better safeguard the automaker and protect the legions of workers who depend on its survival.
Notably, Barra is a legacy from the GM management that failed.
Contact Eric Starkman at eric@starkmanapproved. Anonymity assured.
