Investors in the credit markets are a finicky group. The pits of world credit markets are filled with highly-strested investment managers playing a high-stakes game of craps with debt instruments and detault insurance premiums. What with the daily ups and downs of the domestic auto industry, we can only guess the amount of Maalox and Tums auto debt traders down after every market swing. For a long while it's been GM giving them heartburn, but it appears there's been a switch in the trading dens — and now Ford's giving them the burning feeling trader's only cope with through use of Prevacid and receipt of insanely high salaries. What's caused the sudden change?
It appears traders are concerned about whether Ford's "Way Forward" plan is really going to be the "Step 2" Ford North America needs to return to profitability. Here's some analysis and numbers from the Financial Times:
The annual cost of five-year protection against a Ford default climbed to 9.39 per cent on Wednesday... while the cost of equivalent protection for GM stood at 9.26 per cent...Default protection rates for GM in the credit default swap market had jumped to more than 13 per cent in January...GM's stock price has risen by 42 per cent since the start of the year as fears have subsided that the world's biggest carmaker was on the verge of filing for bankruptcy protection. On the other hand, Ford stock touched a 52-week low of $6.38 this week.
Rating agencies have cut debt ratings on both companies deep into junk territory in the past year, reflecting concerns about their shrinking market shares and high healthcare and other labour costs.
So basically, we're back to the same issue — make cars people want to buy. Oh, and do something to cut your healthcare and labor costs. If only there was a country nearby they could ship some of their operations off to — a country with lower labor costs and where healthcare is not so much a "requirement." We wonder if such a country even exists.
Ford rated more likely to default than GM [Financial Times via MSNBC]
Breaking! Ford Announces Investment In Mexico [internal]