With bankruptcy plans finally announced for GM today, I thought it would be nice to revisit a previous post. On December 20, 2008, I posted an article entitled, "Ford tough," in which I praised Ford's decision not to accept government bailout money. I said the following:
Just look at what has happened to the stock prices of Ford and GM since December 20, 2008. The market has spoken.
The proposed auto bailout has been one of the most discouraging pieces of government action since the beginning of our current financial crisis. Ford's decision to stick with the market is one of the silver linings in the ominous clouds of the global recession. Ford does, of course, run the risk of not beeing able to compete in the short-run with GM and Chrysler and their new influx of government cash. But that's not really where the competition is anyway. The real contest is to see which U.S. company will be able to compete with their Japanese counterparts. I think the market will look favorably on Ford's long-run positioning.
Just look at what has happened to the stock prices of Ford and GM since December 20, 2008. The market has spoken.
That is a very useful graph! Ford has a grand opportunity. Even when GM gets back on its feet it will not have anywhere close to the liberty Ford will on production decisions. And we all know how well the government determines what to produce.
I can't tell you how happy I am that taxpayers (ie: those who are making money) get to foot the bill for business models that don't work.
What a horrible precedent this is setting for the future of our nation. We're plagued with this "too big to fail" fallacy. So basically, if you inefficiently lock up enough capital it's okay. We won't let that capital liquidate because it's temporarily uncomfortable.
This is a rather normative comment, haha.
It's even worse if you do it in percentages:
GM went from $4 to $1, a factor of 4, and ford went from $3 to $6, a factor of 2.
Total a factor of 2x4 = 8 change (you can believe in).