Ford/GM Bankruptcy Won't Happen

[FordBuyer]

The U.S. lost 750,000 jobs so far this year. If GM and Ford were to fail, over 2.5 million jobs would be lost. What President would let that happen on their watch?

 

 

 

By Ken Bensinger, Los Angeles Times Staff Writer

October 10, 2008

 

With sales of General Motors and Ford vehicles down more than 17% this year and the companies' stock prices at lows not seen in decades, one might expect the bankruptcy vultures to be circling over Detroit.

 

General Motors Corp. closed Thursday down 31%, to $4.76. That was its lowest finish since March 1950, according to Global Financial Data, prompting jokes among traders that GM was now a mid-cap stock.

 

Ford Motor Co. closed down 22%, to $2.08 -- for a market capitalization of $4.7 billion, scarcely above that of Magna International Inc., which makes, among other things, the rearview mirror for the Ford Edge.

 

Amid concerns about access to credit, low consumer confidence and precarious cash positions, the debt ratings of the U.S. carmakers have slid deep into junk range. GM, once AAA rated, is now a B-, and Ford is slightly above it at B. On Thursday, Standard & Poor's said it would consider further downgrading GM. And this week, industry forecasters said U.S. car sales would be down 20% this year compared with 2007.

 

It's a grim financial picture, but talk of the companies' filing for bankruptcy protection has been surprisingly muted. Financial and industry experts are speculating that the automotive giants may simply be too integral to the economy to go under.

 

"For GM and Ford to fail, some pretty catastrophic things have to happen," said Brett Hoselton, equity analyst at KeyBanc Capital Markets. "Then again, things are pretty bad now."

 

Beyond just selling cars, the Michigan automakers have a huge financial reach, representing millions of jobs in the supplier, sales and aftermarket sector; they each have stakes in large financial services companies selling loans, leases, insurance and, in the case of GM, mortgages; and their value as symbols of U.S. industrial might is something few politicians are willing to overlook.

 

Although 2008 is proving a tough year for all carmakers -- Toyota Motor Corp.'s shares have slid 46% in the last year, and Honda Motor Co. is down 38% -- the picture for Ford and GM appears much worse.

 

Both are struggling under the weight of automobile lineups long on trucks and SUVs and short on the fuel-efficient cars consumers suddenly want.

 

Each company has substantially more liabilities than assets, and with declining sales, the picture is dim for profits: GM lost $18.8 billion in the first six months of the year, and Ford lost $8.6 billion. Despite a sizable reserve of cash on hand, GM last month drew down $3.5 billion of a $4.5-billion credit line, citing "uncertain times in the capital market."

 

Bruce Clark, an analyst at debt rating service Moody's, acknowledged that "their balance sheets are very weak" but said he would be surprised if either company went belly up. "It's not that a voluntary filing can't happen, but the costs associated with the bankruptcy of an automobile manufacturer are generally too high."

 

For starters, both companies still have a lot of money on hand. At the end of the second quarter, Ford had $26.6 billion in cash and cash equivalents, and GM had $21 billion, which even the most negative analysis suggests should be enough to get through this year and most of 2009.

 

Both still have access to lines of credit and are expecting significant cost reductions starting in 2010, when many of their healthcare and pension liabilities to retirees and union workers will be reduced under a new labor deal.

 

In recent months, executives at both companies have revealed plans to cut costs significantly by reducing production and workforce; both have also floated the possibility of asset sales.

 

"We face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets," Renee Rashid-Merem, a GM spokeswoman, told Bloomberg News on Thursday. "But bankruptcy is not an option GM is considering."

 

According to Clark, a bankruptcy filing would probably have terrible effects on the residual value of cars and their warranties, making it even harder to sell new cars as consumers gravitate to other, more stable carmakers. That, he said, means that carmakers would choose to stay out of bankruptcy far longer than companies that might normally see it as a way out of untenable financial straits.

 

GM has a 49% stake in GMAC, a huge lender that not only finances car loans but also holds billions of dollars in residential mortgages. Ford, too, has a large finance arm, and both used their status as lenders to get the companies put on the Securities and Exchange Commission's list of firms temporarily protected from short sales. Executives at both companies have said they expect that under the $700-billion rescue package passed by Congress last week, they will be able to sell impaired securities on their books to the Treasury Department.

 

But perhaps the most compelling argument against going under comes as a result of the companies' unique position in American industry.

 

Despite perilously small market capitalizations -- GM is now worth less than $3 billion -- the two continue to bring in massive revenue and spread their money over a huge number of people. With more than 350,000 employees between them, they are true Goliaths, and when one factors in the estimated six indirect jobs created by every Ford and GM worker, nearly 2.5 million jobs are tied to the Big Two (Chrysler is privately held). By comparison, the U.S. has lost about 760,000 jobs this year.

 

Add to that the deeply symbolic role GM and Ford have in the country's industrial history, and many believe that no politician would ever let such a failure happen.

 

To that end, just two weeks ago President Bush signed off on a plan to guarantee $25 billion worth of low-cost loans to U.S. automakers and suppliers, a crucial lifeline at a time when borrowing at any price is almost impossible for large companies.

 

"It's been a struggle here in Washington to secure an acknowledgment that a domestic-based auto industry is vital for America," said Rep. Sander M. Levin (D-Mich.) on the occasion of the bill's passage. "What this does is to embody that idea, and to help it continue to be."

[P71_CrownVic]

The first one to file for bankruptcy protection will be better off.

 

Filing for bankruptcy does not mean the doors are going to be shuttered.

[SVT_MAN]

The first one to file for bankruptcy protection will be better off.

 

Filing for bankruptcy does not mean the doors are going to be shuttered.

 

Kia makes good cars.

[jpd80]

I'm simply amazed that people still think Ford NA = Whole of Ford.

 

Everywhere else in the world, Ford is in profit and it beggers belief how negative US press are.

Edited October 12, 2008 by jpd80

[TStag]

I'm simply amazed that people still think Ford NA = Whole of Ford.

 

Everywhere else in the world, Ford is in profit and it beggers belief how negative US press are.

 

 

At the moment. But the money men are now betting on a global downturn. In which case even the best car makers (of which FOE is one) will struggle to generate much of a profit if any. I kind of wish Ford shareholders got some better protection by splitting the company into Ford NA and Ford "the rest of the world". You can still partner in the same way's it would just mean that if Ford NA went under it wouldn't take the whole company down with it.

[mackinaw]

Filing for bankruptcy does not mean the doors are going to be shuttered.

 

Of course you are right, bankruptcy means reorganization, not going out of business. But it also means a total loss of consumer confidence in the bankrupt company. The reality is that precious few people would want to buy a Ford or GM product if either company went bankrupt.

[jpd80]

At the moment. But the money men are now betting on a global downturn. In which case even the best car makers (of which FOE is one) will struggle to generate much of a profit if any. I kind of wish Ford shareholders got some better protection by splitting the company into Ford NA and Ford "the rest of the world". You can still partner in the same way's it would just mean that if Ford NA went under it wouldn't take the whole company down with it.

Selling FoE is not an option because Ford is one company not separate entities like you make out.

In the 1990s , FoE made record losses and FNA bailed them out, now the shoe is on the other foot.

 

What could be done and is being done is this:

Mulally has said he is prepared to shrink F NA until it reaches profit. If you take AM at his word then

that means once restructuring goes through, finance will be sorted out and all those single shift factories

being used as collateral for loans can be shuttered and the workforce condensed even further.

 

Much will change in two years, Ford NA will be unrecognisable compared to GM and its bloated divisions,

and the difference is that Ford has cash to finish restructuring where GM hasn't even started yet.

Edited October 12, 2008 by jpd80

[atomaro]

Of course you are right, bankruptcy means reorganization, not going out of business. But it also means a total loss of consumer confidence in the bankrupt company. The reality is that precious few people would want to buy a Ford or GM product if either company went bankrupt.

 

I doubt it. Brand loyalty will go beyond bankruptcy. F series, Mustang, E-series, etc owners will still come back. People care more about the product offering than the financial status of Ford.

[TStag]

Selling FoE is not an option because Ford is one company not separate entities like you make out.

In the 1990s , FoE made record losses and FNA bailed them out, now the shoe is on the other foot.

 

 

FOE never EVER made losses on this scale. But regardless of that I see NO reason why the two couldn't be broken up. You may need to split Ford into a few companies to do it but you could still partner on research and development. They could partner on engine manufacturing. Ford has been split in the past. Anyone remember Ford UK when that was seperate? It can be done and maybe in the interests of shareholders it should be. Finally if the US taxpayer is going to be on the hook, then it's better so sell of foreign arms so that the US isn't having to cover any losses ouside of the US.

 

Any bailout that may or may not happen, must surely be about saving US jobs. Why put the tax payer on the hook for European ones too?

[mackinaw]

I doubt it. Brand loyalty will go beyond bankruptcy. F series, Mustang, E-series, etc owners will still come back. People care more about the product offering than the financial status of Ford.

 

What brand loyalty? Ford's U.S. market share has dropped from 26% in 1995 to about 12% today. The fan-boys may still buy their Mustangs, but bankruptcy will be just one more reason for Ma & Pa America not to consider a Ford product.

[Griffin]

The Big 3 may not go out of business but, filing for bankruptcy protection can help emerge a stronger/leaner company. A loop-hole would allow them to restructure which can include slashing wages/benefits/pensions/close plants even with current union contracts in place.

[Edstock]

the difference is that Ford has cash to finish restructuring where GM hasn't even started yet.

It sure looks that way, unless GM has some re-organization plans they haven't told us about.

[mettech]

Ever wonder why no company wants to merge or buy Ford or GM? :reading: :shades:

 

It's not because of products.

[papilgee4evaeva]

What brand loyalty? Ford's U.S. market share has dropped from 26% in 1995 to about 12% today. The fan-boys may still buy their Mustangs, but bankruptcy will be just one more reason for Ma & Pa America not to consider a Ford product.

 

Consider how much the market grew also in those 13 years... as well as the expansion of new and existing brands from within and from afar.

 

If the market had stayed the same size and no manufacturer expanded its repertoire and Ford STILL lost 14 percentage points of market share in 13 years, it would be a different story. There's always a story behind numbers.

[Pioneer]

Ever wonder why no company wants to merge or buy Ford or GM? :reading: :shades:

 

It's not because of products.

 

 

Overpaid executives and a bloated corporate structure?

Edited October 12, 2008 by Pioneer

[Edstock]

Ever wonder why no company wants to merge or buy Ford or GM?

No, I've never wondered why no company wants to merge or buy Ford or GM because I know why, and the reason is different for each. Do you know?

 

Have you ever wondered why you posted that piece of stupidity?

[Ford Jellymoulds]

The credit crunch is only just starting to hit Europe were lagging a bit behind the US we don't drive big Pick-ups or SUV's our SMALL car sales that we mostly drive dropped down -20% in the UK last month and the month before that we had the biggest drop of in sales since 1966.

 

So its more credit crunch than fuel prices hitting car sales.

 

Ford were in talks to merge with GM last week Alan Mulally said no, he also said bankruptcy won't happen on a CNBC video.

 

CNBC Ford says no to GM merger and no to bankruptcy....

http://www.cnbc.com/id/27133157

Edited October 12, 2008 by Ford Jellymoulds

[atomaro]

What brand loyalty? Ford's U.S. market share has dropped from 26% in 1995 to about 12% today. The fan-boys may still buy their Mustangs, but bankruptcy will be just one more reason for Ma & Pa America not to consider a Ford product.

 

 

I'm not going to argue...you'll just have to wait and see.

[mettech]

No, I've never wondered why no company wants to merge or buy Ford or GM because I know why, and the reason is different for each. Do you know?

Have you ever wondered why you posted that piece of stupidity?

 

Question answered.

[P71_CrownVic]

deleted

Edited October 15, 2008 by RichardJensen

[atomaro]

LOL...take it easy man

[P71_CrownVic]

deleted

Edited October 15, 2008 by RichardJensen

[RichardJensen]

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