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.