Ford (NYSE: F) could be moving closer to Chapter 11, and it is not because its financial situation has become more critical. It turns out the the federal government may be closer to putting GM (NYSE: GM) and Chrysler into Chapter 11.
According to Bloomberg, General Motors Corp. and Chrysler LLC may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, which the automakers claim would destroy them.
Chapter 11 filings at GM and Chrysler would almost certainly cause a large number of auto parts suppliers to go under as a bankruptcy court would probably only give them a portion of what they are owed by the two car companies. The court might even void their deals with the firms and force renegotiations.
The one thing Ford cannot afford to face is a collapse of its supply chain because many of the firms that sell it components have been wiped out. For a month or two, there could be little effect because Ford has excess car inventory. After that Ford would be faced with severe difficulties getting out vehicles, crippling its sales. It would still have most of its expenses. The resulting losses would be too much for its to bear.
Douglas A. McIntyre is an editor at 24/7 Wall St.