It Is Not Over for Ford

Is "the game is essentially over before it even begins" for Ford because GMAC LLC can offer government-aided preferential financing to GM and Chrysler customers?

The answer is "yes" to Jack Sayer, the managing partner of Sayer Partners, an automotive consultancy who wrote yesterday that "the key component of the advantage that [GM and Chrysler] are going to enjoy will be in the area of auto finance." A similar sentiment was expressed yesterday by Tom Lindmark on Seeking Alpha.

I agree that auto finance is key to the future of the Detroit Three, but Ford is not at the disadvantage Sayer says -- or at least it does not have to be. Ford's disadvantage can be mitigated by the approval of its industrial loan charter, which is still under consideration by the Federal Deposit Insurance Corp. While an ILC won't cut Ford Credit's cost of funds to GMAC (read Treasury Department) levels, it will help Ford Credit gain access to less expensive capital. And that would make the 0% quid pro quo with GMAC more palatable for Ford/Ford Credit.

The likelihood that Ford gets its ILC is good, particularly since many other auto finance companies have one, and have managed the charter amicably. Sayer wrote that "Ford may offer better products, have better management, but in the end, the ability of GM and Chrysler to take advantage of GMAC lending may spell the end of Ford." I wouldn't spell that word just yet.

Tags: chrysler, ford, gmac

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Comment by David May on June 9, 2009 at 3:39pm: If GM is forced to build cars consumers don't want then Ford will have a big advantage nomatter what the loan APR is.

Comment by JJ Hornblass on June 9, 2009 at 9:41pm: David, that is true. Good point.

Comment by Matthew Burril on June 10, 2009 at 1:46pm: Don't be surprised in a few months when GMAC offers packages to all auto dealers... Ford, Toyota, BMW, KIA, Saturn, etc... Part of the reorganization effort is to get GMAC in front of as many auto loans as possible. Last Wednesday, GMAC sold $4.5 billion in new debt under the FDIC program and paid 2.2% They have been given authority by the FDIC to sell an additional $2.9 billion and will get FDIC approval for another $10 billion before the process is over. Recapitalizing GMAC is a mojor agenda item for the Obama administration, due to GM and Cerebus' equity stake that must be sold as a condition of TARP dating back to 12-24-2008. The more valuable GMAC is the higher the price of GMAC voting shares when they sell and the better position the Federal government's equity position in GM.

Comment by JJ Hornblass on June 10, 2009 at 2:23pm: Matthew, thanks for the post. When you say "offer packages to all auto dealers," what do you mean? Floorplan packages? Indirect packages? Would appreciate your elaboration.

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