Ford KO’s GM in Car Sales

by Burt on March 4, 2010

“I do not think that this country is ready to be treated like Russia for a while.” Thus wrote Henry Ford in 1933–after President Roosevelt, through the National Recovery Act, tried to legally force all carmakers to fix prices for their cars and agree not to give customers any discounts. GM and Chrysler went along with FDR, but Ford refused to be regimented by the federal government. “There is a lot of the pioneer spirit here yet,” he said.

Even today, more than 75 years later, we see the pioneer spirit in Ford Motor Company persist. The February results are in: Ford Motor Company outsold GM in cars and light trucks. In fact, Ford’s sales have been respectable during the last year while GM has steadily declined. Should we be surprised?

Not really. True, Alan Mulally is an excellent CEO for Ford and is very competent. But Ford’s decison not to take federal aid–just as Henry Ford did 75 years ago–gives the company a surprising edge. They can make the cars they want to make, do the advertising they want to do, and offer attractive financing to potential buyers. GM, with strong federal oversight, is not as free to run its business in the most efficient manner possible.

Put another way–privately run companies have strong advantages over government run (or subsidized) companies. The Ford example is one of many. John Jacob Astor, the first American to be worth $10 million, built his fortune on his privately run American Fur Company. A government-subsidized fur company was his chief competitor, and it eventually lagged so far behind Astor that Congress finally shut it down in the 1820s. In railroads, James J. Hill privately financed his Great Northern Railroad–the only transcontinental railroad never to go bankrupt. By contrast, the Union Pacific and Central Pacific Railroads–with massive federal aid–both went broke during the 1890s and both consumed millions of taxpayer dollars in financing.

When people run their own businesses, they try to appeal to other people to buy their products. When the federal government gets involved, it skews the incentives. Soon we have CEOs trying to secure federal aid from Congress more than they are trying to make products people want to buy. The historical record suggests that a free economy works better for customers than an economy riddled with federal subsidies and a web of regulations. Three cheers for Alan Mulally and Ford Motor Company for illustrating this lession once more.

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