History is Bunk and Ford is Junk!
Team Latte
June 13, 2005
Among Henry Ford's many famous comments, the one that stands out the most is: history is bunk. The actual quote is "History is more or less bunk", and he said this in his interview with Charles N. Wheeler of Chicago Tribune, on May 25, 1916.
Ironically, history is coming back to haunt Ford Motor Company, an icon of American capitalism. By a quirk of fate, and perhaps due to financial mismanagement or ineptitude or a distinct lack of foresight for many years now, we can't tell for sure which one exactly, Ford Motors is junk, i.e. the credit rating of Ford Motors have been lowered to the junk bond status (below investment grade status) by the credit rating agencies. It has been downgraded to junk bond status, stoking appetite of the hedge fund managers and bringing in nightmare for thousands of blue collared workers.
But this is a story of a great family and a great company, that once shaped the landscape of corporate America and, along with its peers in other industries, started the second industrial revolution on the other side of the Atlantic. The concept of the "assembly line" and the numerous management theories that would spring from that concept in the early twentieth century are all legacies of Ford Motor Company.
Today, Ford Motor Company is unique in two respects: one, the Ford family controls the voting rights via special Class B Ford family stock and controls 40% of the votes and second, for many years now Ford Motors has made majority of its profits from Ford Credit Lending unit and not from making and selling cars. And of course, the Company is being led by a great man Bill Ford.
How did such an iconic company come down to this level? How could the fortunes of Ford, along with its rival, GM, fall so far in so short a period of time?
Some analysts say that it's all got to do with pension plans, or more aptly put, a mismanagement of corporate pension plans. Some analysts are pointing out to a combination of factors, such as rising health care costs (health insurance costs of the employees), losing market share and quite importantly, not being able to keep track of and change with the changing tastes of American consumer; Some are pointing towards the reemergence of Japanese auto makers on the global scene and in particular, in America, as a the biggest challenge a threat to Detroit. There are a few, of course, like the author of the first article listed below, who are trying to look at this from a much broader macroeconomic perspective and the shifting horizons of the global info-industrial economy.
We too believe that the gigantic forces of the global info-industrial (or as some say knowledge) economy are rendering the established beliefs, theories and practices of corporate management useless and causing great imbalances in both the micro and the macro economic market structures.
But the point is perhaps, history isn't after all bunk. There could be lessons learnt from our past and applied to our present. Perhaps, the management at Ford Motors could have analyzed and studied the history of the late nineteenth and early twentieth century and found out how the telephone and the radio, and of course their own assembly lines, had changed and influenced the American consumer and then perhaps, they could have foreseen the asymptotic influence of the internet, knowledge economy and the rising tide of competitive forces, even beyond and away from their own industry, and how these would ultimately be shaping the American car-buyer.
Anyway, we hope the following links will provide a glimpse of what is happening now in Detroit, and how another industry, the hedge funds, is getting affected by Detroit's woes.
- Ford Cut by Moody's After Earnings Decline Below Forecasts
- High Yield Market Survives GM and Ford, but Now What?
- Fitch Downgrades Ford Debt
- A 100 year Hedge Fund Storm 7 Years Later?
- Driving Around
- GM, Ford Downgraded to Junk
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