Will Ford Benefit From Federal Contracts Given Government Stakes in GM, Chrysler?

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The myriad issues and conflicts posed by even partial government ownership of General Motors are formidable and ponderous by most accounts. So you have to wonder what happens to the significant number of government contracts awarded to GM and Chrysler under current bailout plans.

For fiscal year 2009 through mid-April, GM has been awarded $522 million in federal contracts, 96 percent of them competitively bid. Add in the $361 million in fed contracts going to Chrysler and it starts to add up to some real money.

The government cannot bid competitively with entities that it partially owns, and under GM’s most recent restructuring plan, the feds would hold more than 50 percent of the automaker’s stock in exchange for forgiving $10 billion in government loans. If Chrysler’s bankruptcy continues as planned, the government would hold an eight percent stake.

The last transaction recorded between the General Services Administration and Chrysler — a relatively small $23,000 contract for a “police use car” — was on April 8 and had a field of four bidders. Many of GM’s bid awards are similar. When the field is winnowed — the government still needs these vehicles — it could well mean that Ford stands to bolster its standing in such procurement decisions.

Even experts are wondering how this will shake out. Does it mean GM and Chrysler will be out millions of dollars in government contract dough that they have counted on for years?

“I can’t even think of what the answer to this might be,” said Joe Flynn, President of the Association of Procurement Technical Assistance Centers in Gallatin, Tenn. “This is something that will have to be dealt with, and soon.”

President Obama has stated emphatically that he has no plans to create what some critics have dubbed Government Motors: “I don’t want to run auto companies, I don’t want to run banks. I’ve got two wars I’ve got to run already…. The sooner we can get out of that business, the better we’re going to be,” he said.

Tags: Chrysler LLC, General Motors Corp., Government, Manufacturing, Vertical Industries, Steve Miller

Steve Miller has covered the auto industry, including product news, business issues and marketing, for Ward's Auto World, Brandweek and several other national media outlets.

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1

Dagpotter

05/14/09 | Report as spam

RE: Will Ford Benefit From Federal Contracts Given Government Stakes in GM, Chrysler?

The Federal Acquisition Regulations (FAR) Part 8 actually encourages the Governent to purchase from themselves if available. The Defense Department expecially use to make and repair all sorts of things for its use -- ships, vehicles, small arms and ammunition. They historically had a core capability that would be ramped up by private industry during times of great demand like WWI or WWII. Certainly private companies became their biggest source over time and in the Nineties the Department began divesting its large depots. DoD still operates several depots often side-by-side with contactors. So the government owning GM and Chrysler might actually lead to more business for them and it wouldn't have to be competitively bid.
2

avalanche50

05/14/09 | Report as spam

RE: Will Ford Benefit From Federal Contracts Given Government Stakes in GM, Chrysler?

So they could actually charge more and increase their earnings from these contracts via a no-bid process. If true, it apears this could also represent a loss for Ford in its own government contract business (which is a paltry $238 million this FY)
3

Dagpotter

05/15/09 | Report as spam

RE: Will Ford Benefit From Federal Contracts Given Government Stakes in GM, Chrysler?

Yes, if the government owned the companies they could just buy them from there. There wouldn't be any earnings or profit though. It would just get plowed back into general government spending unless the car companies were off budget.