One of the nicest things about going into bankruptcy is coming back out. Unless, of course, no one will give you the money to start anew. Delphi, the large auto parts company, had $6.1 billion lined up to start business as a company out of Chapter 11, but the credit crunch is making that exit very difficult to fund.

JP Morgan (NYSE: JPM) and Citigroup (NYSE: C) were leading the group to supply Delphi with capital. But they cannot lay-off some of the loans because hedge funds and other institutions don't want the risky paper. GM (NYSE: GM), Delphi's former parent might put up some of the money, but the car company may need its cash for making up loses at its North American operations.

The banks are not required to put up the money. According to The Wall Street Journal, "J.P. Morgan and Citigroup are bound only on a 'best-efforts basis' to arrange the loan." In other words, they can dump the deal.

Raising money for a car parts company in the worst auto recession in two decade would be hard anyway. Perhaps Delphi should just stay in bankruptcy for a couple more years. The company might be better off.

Douglas A. McIntyre is an editor at 247wallst.com.

The former parts division of General Motors Corp. (NYSE: GM), Delphi Corp., signed settlement and restructuring agreements with its former parent last Friday as it rolls out is plan to emerge from Chapter 11 bankruptcy.

Delphi is trying to put behind it a slew of legal wranglings with GM so that it can begin the process of creating a profitable company without a shaky future. Its reorganization plan, which has been a long (long) time coming, outlines many areas the company has singled out as key to its return from bankruptcy. One of the biggest wins for GM is a $2.7 billion cash distribution that the automaker will receive in lieu of its multiple claims against Delphi.

But the fun does not stop there -- Delphi has reached agreements with all six U.S. labor unions. The company will continue to operate four UAW-represented sites, three IUE-CWA-represented sites and one USW-represented site. Ah, the unions get their comeuppance here (no surprise). However, a sour note is that 25 Delphi sites in North America will be sold or closed.

The relationship between GM and Delphi and the resulting bankruptcy of the latter is one of the more complex situations in the automotive business in the last decade or so. GM needs to get this behind it so that it can concentrate on the business of, you know, making cars and trucks that customers want to buy, and at competitive prices. The Delphi situation has been a drag on resources for far too long, but the clouds are starting to part.

September 15, 2006, a day that will live in infamy. Well, that may be overstating the case. It was, however, the day both Ford Motor (NYSE: F) and DaimlerChrysler (NYSE: DCX) announced major cutbacks in production and various other cost-cutting moves. Since then, there have been many negative stories about the auto industry.

Before buying into the widespread despair, investors will want to read Sandra Ward's interview (subscription required) with widely respected auto industry analyst Chris Ceraso in the September 25, 2006 issue of Barron's. Yes, Ford announced a Q4 production cut of 21%. Chrysler forecasts a 16% production cut. This will still leave both companies with production in excess of demand through FY 2007. Ceraso, and other auto industry insiders, are particularly disappointed with the vagueness of Ford's third restructuring plan in five years. Ford's plan is much less detailed than GM's plan with few specific rubrics for measuring cost-cutting effectiveness. Ceraso forecasts a $5.5 billion loss through 2007, larger than Ford's estimate. He forecasts cost savings of $5 billion through 2007, smaller than Ford's estimate. Ceraso does not see any indication of Ford profitability until 2009.

There are several macroeconomic factors operating in Ford's favor right now, but negative changes in any one of them could further hamper Ford's turnaround efforts. Oil prices could climb again to uncomfortable levels for any number of reasons. The Fed could hold interest rates at present levels, which is better than any increase. In many real estate markets, housing prices are beginning to moderate, giving people more money to spend on non-mortgage related items.

While Ceraso remains cautiously positive, the fallout from Ford and Chrysler's announcements continues downstream. Virtually every automobile parts supplier's stock has taken a hit. Modine Manufacturing, Lear, and American Axle & Manufacturing Holdings are down. Visteon Corp. has revised its previous forecast downwards and says it will not meet its financial targets for the second half of 2006. Visteon has already began layoffs. Delphi Corporation, a huge auto parts supplier, has 1,400 more workers ready to accept buyout offers. BorgWarner (subscription required) has announced plans to cut staff by 13% or 850 jobs, and lower its per-share profit for 2006 from $4.35- $4.60 per share to $4.10 at the most.

The ripple effect has already spread to the raw materials suppliers. U.S. Steel Corporation, AK Steel Holding Corporation, Algoma Steel and Mid-West Materials may all end up with excess supply. Given China's continued export of steel, there may be a worldwide glut in 2007, forcing prices to unprofitable lows.