Thursday, October 13, 2011

Slippery slope is very wet

It must be pretty quiet at the White House these days. I would have thought that they’d be really busy with 3 (soon to be 4) active military conflicts, an ongoing global economic crisis, regulations to write and revise and the general activity of running a $3.4 trillion enterprise. Not to mention gearing up for a $1 billion campaign to keep the office. With all of that going on they still have time to monitor advertising of a private company and question it.

Ford Motor Company is a storied American company. The company embodies what Americans see in themselves: innovation, financial success and, like their long time ad campaign, quality. During the 2008 financial realignment, industry leader General Motors and also-ran competitor Chrysler went to Washington and asked for relief. Ford executives supported the concept of the bailout but did not require assistance themselves.

The company made and released an ad a few weeks ago  where a customer explains why he chose to buy Ford. From the ad: “I wasn't going to buy another car that was bailed out by our government. I was going to buy from a manufacturer that's standing on their own: win, lose, or draw. That's what America is about is taking the chance to succeed and understanding when you fail that you gotta' pick yourself up and go back to work."

It’s an interesting strategy to sell cars. Usually automobile companies sell cars with loads of video of the vehicle in motion against some fabulous scenic backdrop. In the 1970’s Japanese cars took significant market share from Detroit based on the reliability of the car in spite of exhortations to “buy American.” Having an average American justify his brand selection based on whether the company received a Government subsidy seems ineffective.

The ad, however, won’t be widely seen to determine whether it was an effective strategy or not. The company pulled it. According to The Detroit News the White House questioned the company on the ad given that Ford’s CEO had supported (but didn’t take) the bailouts. The Obama administration’s support of bailing out GM and Chrysler might be a factor.

According to CNN, the Chrysler bailout cost U.S. taxpayers $1.3 billion so far and the company is now owned and run by Italian car maker Fiat. Approx. $7 billion is still due by 2014.

Reuters reports GM received $60 billion in bailout dollars that taxpayers hold as stock in the company. They didn’t use all of the funds so in April used some of the bailout dollars to repay the $4.7 billion loan.  The $60 billion is currently worth less than $30 billion today. The Treasury Department has replaced two CEO’s at the company in the past 2 years.

Since the U.S. Government is now in the automotive business it makes more sense that they’d be attuned to the competition’s ad campaigns. Ford, of course, had the option of continuing to run its ads. The fact that the biggest shareholder of its largest competitor also regulates Ford’s business probably had something to do with the decision. Virtually every part of the manufacture of a car is regulated. Some are safety oriented so that headlights, tires, etc. meet minimum and consistent standards. Others are environmental determining minimum gasoline usage per gallon. Without debating the value of one regulation or another, the fact that a regulator can significantly impact the manufacturing process is a major incentive for companies to be compliant. In Ford’s case, its regulator is also its competitor.

There are many reasons that the Government should not be in the automotive business. The merits of bailouts, subsidies and loans are fodder for another blog. Human nature is probably most at play in this situation. Ford saw an opportunity to distinguish itself from the competition. The White House scratched its head and called up the company and asked some questions about why they were slamming a policy that they supported in testimony on Capitol Hill. The White House didn’t suggest that Ford stop running the ad. Getting call from Big Brother let alone being challenged by the White House Ford figured the path of least resistance would probably serve them best with their regulator was to pull the ad. It’s all understandable. It’s just terrible.

What’s next? Government telling cereal companies that cartoon characters can’t be on their boxes or in their ads? The House Energy & Commerce Committee actually had a hearing this week to evaluate guidelines for advertising for certain foods.  The opted not to (for now). Some food companies will now second guess their marketing strategies because of the possibility of governmental intrusion. And that’s the tragedy here. The slippery slope of the State interfering with private industry is quite wet.

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