Ford Motor Credit Hurts Recovery, Independence

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VW says it want a bigger market share in the US. Much bigger. With the tremendous competition in the world’s largest car market, it may not get there, unless it can buy its way in.

Ford (F) is starting to look better and better as an M&A target. The company said yesterday that it was having significant trouble at its lending unit. At Ford Credit "Delinquencies are rising on its loans — especially those for big trucks — and some of its borrowers owe more than their vehicles are worth," according to The Wall Street Journal.

Ford faces huge losses in it North American operation. Management had hoped for operating profits in 2009 and then backed down on that prediction. It now seems almost certain that Ford will have to cut more workers, idle more plants, and squeeze more suppliers. At some point all of that reaches a limit.

Ford still does well overseas. Its Latin America, Europe, and Asia divisions all posted operating profits in the last quarter. But, if red ink in the US keeps moving up, Ford may have no alternative other than to sell stock or borrow money to underwrite its prolonged recovery. The cost of debt to a company like Ford which carries a "junk" rating, will be dear.

Ford cannot support huge losses and substantial debt service forever. At some point, perhaps toward the end of this year, the Ford family, which has a large portion of the company’s voting shares, will have to pick Chapter 11 or sales to a foreign buyer.

Douglas A. McIntyre