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.
Reader Comments (Page 1 of 1)
2-09-2009 @ 5:51AM
jules1879 said...
If GM and Chrysler go under because they couldn't meet their obligations with the government, I think Ford deserves the help. They haven't taken a dime and were the first to produce a high-bryd and electric auto. Don't let our last American made auto company be pulled down by mis-managed GM and Chrysler.
2-09-2009 @ 6:40AM
emi said...
It seems that the worst is yet to come and not still over...
Sachin
http://earn-money-ideas.com
2-09-2009 @ 12:06PM
Justin Fogarty said...
Hopefully, Ford (and the suppliers!) have time to make the case for their share of TARP money to provide the bridge $$$ they need. The sad part is, this under-reported story has HUGE employment implications, not to mention the fact that this could truly sink any hope for a resurgent American manufacturing base.
I blogged more about the suppliers and TARP here if you're interested:
http://www.supplyexcellence.com/blog/2009/02/06/auto-suppliers-tarp-bridge-solutions/
2-09-2009 @ 2:08PM
Robert said...
No mention of the broader implications of a GM/Chrysler bankruptcy? Say, the production cessations from Honda, Toyota and Nissan? They have more days supply of inventory than Ford at this point, but the reality is the same: they all use the same supply base and would all be impacted. This is far greater than Ford's problem. In all likelihood, auto production in the U.S. could get shut down for 3-6 months.
I never believed the right place for government money was in GM and Chrysler. I believed it was in the suppliers - because although GM could trigger a massive wave of layoffs by its failure and take down at least Chrysler and Ford and potentially Nissan with it, the medium of the propogating destruction is the suppliers. Prop them up and the inefficient GM and Chrysler can go down in flames without destroying the industry with them....
... but here we are.
2-09-2009 @ 8:26PM
Cho Minh said...
The U.S. automakers deserve bankruptcy. They represent the excesses of a greedy Western lifestyle. Chinese workers have toiled to give to you your wealthy standard of living, and for a fraction of what U.S. workers have been paid. Then, we have faithfully saved and invested our earnings in the U.S. only to lose our money in your financial collapse. We will now drive your companies into bankruptcy then purchase them for our collective own. We have earned it. We will no longer trade fairly. There is nothing you can do about it, because you need us to make everything your extravagant greedy lifestyles consume. We will not buy your goods or services. We have the freedom now; you have the debt. Next we will take Taiwan back. You don't have a clue. We get the big V-8 now, but it won't be a Detroit product until we own it! Ha Ha.
2-10-2009 @ 12:13PM
seangw said...
Great post! I hadn't thought of that. I hope the government is paying attention to all of these details.
It seems like there is no end game plan.