Tuesday, November 3, 2009

Market Forces Vs. Government Forces

Now, I'm not one to often gloat when I'm right, but the news of the "unexpected" profit by the Ford Motor Company this week just makes me want to dance around in my Milton Friedman Halloween mask. From the New York Times this morning:

While its crosstown rivals stumbled through bankruptcy this summer, the Ford Motor Company pressed its advantage, and delivered surprising news on Monday that its cost-cutting efforts and improving sales helped it earn nearly $1 billion in the third quarter.

Ford could have taken the bail-out money the same way that GM and Chrysler did. It would have been easy and completely understandable. Who says no to free money. Well, Ford did as they had put together a plan to work their way out of near bankruptcy. What is this plan that Ford came up with to once again become a profitable company. I'm sure that it must be something that the masters in DC could push GM and Chrysler to do.

Ford, which earned $997 million in the third quarter and made money in North America for the first time since 2005, has turned itself around largely by cutting costs and introducing cars that consumers want to buy, rather than resorting to deep discounts to lure shoppers into showrooms.

Let me get this right, by producing a product that consumers want to purchase, Ford was able to post a profit. That flies against everything I learned in my economics courses over the years(snark.) Look, this was a foregone conclusion that Ford was going to post a profit as they have been restructuring their business for the last several years with an eye on the future. Certainly, GM and Chrysler were able to clear their books by taking gubmint money, but the psychological and monetary edge that Ford picked up during the government restructuring of Chrysler and GM put Ford at a distinct advantage.

When Ford chose not to ask for government loans, the company was freed to continue spending on new products like its Fusion and Taurus sedans. G.M. and Chrysler, by comparison, had to rein in much of their product development programs to conserve cash while they awaited federal aid.A report by the Government Accountability Office released on Monday said that the federal government was unlikely to recover much of the $81 billion that was invested in G.M. and Chrysler, their suppliers and related financing companies.

Let this be another example for the inefficiency of Government Force Vs. the Power of Market Forces. While Ford investors will begin to see a return on the investment that they are making into Ford Motor Company, you and I, the American taxpayer, will never even sniff the 81 billion that we sunk into GM and Chrysler.

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