Ford posts $1B profit, Wall St ready for rally. How much did that cost taxpayers?

CNN Money - Pre-Market Report



I know after last night's not-so-surprise bankruptcy of CIT, the closure of several more banks, and last week's sell-off people were beginning to expect a rough week on Wall St. Now that Ford was able to go into the black (thanks to cash for clunkers which cost about $3 billion) the MSM is painting a rosy picture as good times are ahead.

So, how much did this all cost taxpayers? Are taxpayers footing the bill for the CIT foreclosure as well? I just don't see anything positive related to economics that is 'real'. If Ford had posted the profit because Americans had jobs and confidence in the economy, then great. But when they post profits based on a government program which used $3B to hoodwink consumers into taking out auto loans to buy cars they do not really need then I get a little leery.

Is this the beginning or a real rally or just a blip before the inevitable drop?

reply to post by nydsdan

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As I remember, Ford didn't take government hand outs. They were the only American car maker that didn't. Or am I mistaking?

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I just did a search in Google, "did ford take bailout money", and it seems, buy the results, that they didn't take the money. So, with Ford posting a profit, it would seem that they didn't get this boost from direct government help. Of course, they would've gotten aid indirectly due to the cash-for-clunkers program. That's not really them asking for cash though.

reply to post by nydsdan

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From my calculations, Ford should have received a little over $400 million, from the Cash for Clunkers. That would be very near half of the $1 billion. Therefore, in my mind, this report doesn't really give me any confidence that a rebound is afoot. They won't have that taxpayer boost in the next quarter. At least I hope our government doesn't come up with another scheme.

At least Ford didn't take any of the "bailout" funds. Consider that GM has received about $50 billion in "bailout" money (loans?). Then, they received almost $500 million from the Cash for Clunkers fiasco. As of October 8, they have "repaid" $361 million. To translate, you and I, the taxpayers, loaned GM the money, then we 'gave' them $500 mil, which they used to "repay" a portion of the loan.

Source: money.cnn.com...

I wonder if my banker will go for that?

While I can agree that Ford was the ultimate recipient of those funds, those funds were actually an incentive payment to consumers to get rid of ineffiecient cars and replace them with fuel effecient ones. Consumers who purchased vehicles during the promotion were also direct recipients of those funds in the form of a credit toward a new car.

I am not a fan of government dumping money into the economy but this is at least one instance where it can be said to demonstrably help consumers, the environment, the car manufacturers and the auto fuel industry (by increase fuel supply by reducing wasted fuel).

Just my $.02

reply to post by BomSquad

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True, but that money (Cash for Clunkers) did go into Ford's ledger, in the heading of receipts. Therefore, it is counted toward their profits and it did come from the taxpayers. I didn't say it was part of a 'giveaway'. I guess I should have worded it to say that they received the money as a direct result of the C for C program. The question is whether or not they would have posted the $1 billion profit, without the Cash for Clunkers money.

I received the following in an email I have not checked the figures, but I can imagine they are not far off

A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline.

· A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.

· So, the average clunker transaction will reduce US gasoline consumption by 320 gallons per year.

· They claim 700,000 vehicles, so that's 224 million gallons / year.

· That equates to a bit over 5 million barrels of oil.

· 5 million barrels of oil is about ¼ of one day's US consumption.

· And, 5 million barrels of oil costs about $350 million dollars at $75/bbl.

· So, we all contributed to spending $3 billion to save $350 million.

How good a deal was that???

[edit on 2-11-2009 by WTFover]

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[edit on 2-11-2009 by WTFover]

I agree completely. I believe Ford is the only one of "The Big 3" that would have posted a profit whether or not there was a Cash for Clunkers program. That profit might not have been as large as it was were it not for the C4C program, but there would still have been a profit.

As far as American car companies go, Ford is probably the best managed of the bunch. The other companies seem to only plan for the now while Ford adjusts the amount of risk they assume based on a longer view of the economy.

The other companies seem to put too many eggs in to too few baskets too often.

reply to post by BomSquad

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Absolutely! I drive Fords and will, definitely, buy more. If for no other reason than they declined the bailout funds.

True, but you also have to take into account a certain percentage the folks that took advantage of the C4C program were looking to buy a new vehicle anyway.
I'm with on your last comment, my next vehicle will be a Ford.

[edit on 2-11-2009 by Alxandro]

Good point. My only retort would be that if we consider that 224,000,000 gallons of fuel that consumers no longer need to purchase at say $2.50 a gallon (a low estimate, I am sure) would add about $560,000,000 of economic "stimulus" to the economy as they would no longer need to spend it on fuel alone, but could spend it on any number of consumer goods, or even invest it in other ways.

As we reduce costs to consumers whether through greater efficiency, tax breaks, lower prices in general, we put more money into the economy. Consumers, as a group, tend not to save money, but spend it, especially in the Amercian economy. The health of an economy is not measured in how many dollars are present, but in how many dollars are flowing through it.

Before the big celebration lets no forget that Ford lost 14.6 billion last year.

That means they are still short 13.6 billion to be pre recession again.

So if every quarter they make 1 billion dollars "profits" they will need several quarters to come even from their lost of 14.6 billions.

Now Ford didn't used bailout money, but they cut jobs, close dealerships around the nation and took benefit of the clunkers program.



[edit on 2-11-2009 by marg6043]

reply to post by BomSquad

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That is exactly where I place the blame for the 2008 economic downturn. For 2007 and 2008, Americans were strapped just to keep fuel in their tanks, to get to and from work. Here in central Texas, regular gasoline exceeded $4 per gallon and I know that is considerably less than some areas. When a person's disposable income was going in the fuel tank, they weren't buying 'stuff'. When people don't buy 'stuff' (not fuel), the economy screaches to a halt.

reply to post by marg6043

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It would have been irresponsible of Ford not to have cut jobs, close dealerships and accept the benefit of the clunkers program.

Ford is in business to make money. If the demand for vehicles shrinks, the means of production and distribution of those vehicles must also shrink. If it does not, the company either ends up spending money producing vehicles that will not sell or reducing the price of those vehicles to below production costs just to clear out the inventory space.

This is both the beauty and curse of "just in time" inventory. When times are good, the delay is almost always on the supply side of the equation. When times are hard, the delay is on the demand side of the equation. Any company that uses a JiT inventory strategy must try and balance the supply vs. demand as much as possible or face wasted spending on uneeded inventory or lost sales due to restricted supply.

Ford seems to have done this better than the other Amercian car makers.

This is, of course, not the only difference between car makers, both foreign and domestic.

Another glaring difference between foreign and domestic car makers is their initial costs. Most foreign car makers do not have to pay for healthcare for their employees. This reduces their cost per car dramatically. Some have estimated that this reduces the cost of car production by up to $2000 per vehicle. (I will try and find some links to substantiate this.)

There is also the union vs. non-union work force as it applies to costs of car production debate. There are valid arguments either way on that debate, and I do not want to derail the thread any further to discuss that.

reply to post by WTFover

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I came very close to buying a motorcycle during that time just to save fuel costs on my commute to and from work. Once we looked at the numbers, it turned out that in my region, my fuel cost savings would have been offset by my added insurance costs, so no motorcycle.

Have fun AND save money? Sign me up!

reply to post by BomSquad

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Well I guess that is how capitalism works the strongest live while the weakest goes away, but this time around the weakest got bailout money from the tax payer that many now lies unemployment and destitute.

But then again the false sense that the economy is recovering has a lot to do with the ability of companies to shed jobs to maintain profits.

But is deceptive if you take into consideration that none of them has actually recuperated since the beginning of the recession.

Ford has done well they don't own anything to the tax payer because they didn't took bailout money.

Once again poor financials take there toll

Doesn't look like much of a rally


After giving up 100 points the DJI is parked at +18.67
not much of a rally ... but the days not over, plenty of time to go either way

Oopsy need to amend my post the Dow just dipped into the red -o.98 (0.01%)

[edit on 2-11-2009 by DaddyBare]

I bought a lot of Ford stock when it was down to $1.26 a share. I also considered buying GM (Government Motors) stock at the time, but the fact that GM accepted so much bail out money really turned me off.

I still drive two GM vehicles that are paid for but I will never buy another GM vehicle again.

It should be interesting to see how these two automakers compete with each-other now that GM is dancing to the tune of the government puppet masters.





[edit on 11/2/2009 by Sparky63]

You are correct. I think what I was trying to say is that the C4C program enticed people that normally would not buy a car to buy a car. Add to that the fact that Ford is the only one of the Big-3 capable of standing on their own and it becomes obvious that they would swing a Q3 profit. As such, it is no reason for the markets to rally or for the MSM to start declaring a "November bounce" from last week's decline.

The way I saw the C4C program was this:
Government takes $3B from taxpayers and offers it as incentives for taxpayers to take out loans to buy cars. The car company wins, the bank wins, the government wins, the taxpayer loses.

Oh, but some minuscule amount of greenhouse gas and petroleum got saved if you don't factor in the amount of energy and fuel it takes to manufacture a vehicle.

This misleading, in a sense, the MPG issue. It kinda makes me laugh, if you will...most people arnt aware, for example, to achieve a good MPG/fuel ratio, the testing is done at a lab, not in real life situtations, most of us go thorugh lots of stop n go traffic, LA is an example of that. The longer you keep an engine running at standstill, the more fuel you are dumping,a nd is being unburnt..it simply starts to collet over time, in yuor oil..that is why frequent oil changes are necessary. Feul does not belong making contact with the metal in an engine, other than to properly combust* it is not a lubricant. Therofre, yuor sprak plugs get fouled up faster. remember the spark plugs are what detoantes the fule into the air mixture to create spark for piston movement.
People who do alot of stop n go traffic, aka city driving* should replac thier plugs every year or 2,t o maintian that MPG ratio. its not difficult to do nor expensive. You dont have to buy anew car necessarily, if all you do, is change yoour plugs often, oil change at 3,000 miles or 3 months, tranny sercvice(have a pro do it with authentic dealer ATF only!) at 60,000 miles, and change that air filter wheni t is black or every 7 years. The air fitler is regarded as the most important maintence item on yuor car/investment, then yuor oil changes. Doing so, yuor car will serve you well, and the engine and tranny should well outlast the steel and body of the car*
Personally i still have a 95 plymouth neon. it is somewhat a lemon, but its was rated at 34 MPG. Ive had it since 2000, second hand, with 34,000 original miles on it. I do alot of city driving, unavoidable..and with a 10 gallon max fuel tank, i still have to refill onvce a week, marking up about 320 miles in a month.

The point to my reply is, the MPG thing the dealers use, just seems to be a misleading sales pitch*

I hear ya. In fact, I would love for dealers to put on the sticker the equivalent of how many gallons of gas went into the production of the vehicle. You know, all that plastic, rubber, tempered glass, machined parts etc... take the fossil fuel resources required to create all of that and convert it to equivalent gallons of gasoline. I bet that would open the eyes of the consumers!

I do not know for certain, but I am willing to wager that junking a 'non fuel efficient car' that burns 12MPG in favor for building a new car that burns 21MPG may not be as environmentally conservative as many believe. Just a guess, mind you.