I was watching the news this morning and it seems that more and more people are convinced that the big three should undergo a chapter 11 re-structuring of debt (Sorry if I used the wrong chapter- 11,7,13, all pretty confusing). The bottom line is that there is a very good probability that the automakers are going to declare some type of bankruptcy. My questionis, when the inevetable happens, who should go first? What would the benefits be of being the first to pull the trigger and file? It seems that the sooner you do it, the sooner your recovery will start. You can start pleading your case to the public, advertise- "we're coming back, Bigger, Better, Stronger, and we want you to have all the confidence in us that you've displayed in the past..." I feel like the first one to file is going to come out the strongest in the next few years. I seriously doubt that filing would make them die off completely. What do you think, should Ford just go ahead and jump?

 

I don't think there is an advantage to being first. If ANY of the Big 3 file for bankrupcy (and Chapter 11 is reorganizing) we're in for a depression at least as bad as the '30s.

Many people won't buy a vehicle from a company that's in Chapter 11. They are afraid that there won't be warranty coverage, parts availability, and no resale. So whoever files first loses their customers to another company. Now that there is no income, they fail. Chapter 11 gets changed to Chapter 7 (liquidation) and that company ceases to exist.

Now several suppliers that were dependant mainly on that company follow suit because their income has gone down so far they can't exist. It's a rare supplier that only suppliers one company, so when they shut down other auto companies suddenly can't get some parts they need to build cars. This shuts down assembly plants, so the other OEMs have no income. They can now skip Chapter 11 and go straight to Chapter 7. This will shut down most of the other suppliers, which will also shut down the transplant auto plants like Toyota, Honda, etc.

Now we will have no automobile manufacturing in the US. If you think the economic situation is bad now, wait for this to happen. It will make what's going on now look like the good old days.

 

Alan Mulally has said that Ford really doesn't need the bailout money (yet). Ford, as Mulally has said (and I've seen it elsewhere), apparently has more cash on hand than GM and Chrysler. Perhaps somewhere around 20 billion. Of course, that's because they collateralized al their assets in recent years. I doubt Ford would be the first to declare bankruptcy. Mulally has said that he went to Washington because the failure of any would hurt the industry.

There are, of course, advantages and disadvantages to bankruptcy. Chapter 11 (reorganization - Chapter 7 is liquidation) would allow renegotiation of contracts. But, a bankruptcy declaration no matter which type, would probably affect consumer perception negatively.

I don't think any would declare Chapter 7. At least not at first.

On Edit: As I was posting Mark jumped in first - agree with his points.

 

I think the Ford family has their own stash of cash if it comes down to it, I read somewhere that the family was considering the option of taking the company private again. Whatever they do I think all businesses in this country have to reconsider their use of credit. If you have to borrow just to make payroll you are overextended and need to pull back.

 

Well, if you have a vehicle NOW, that is under warranty and the manu goes 11/7, you are a creditor, but I assure you, your claim is well behind the banks, suppliers. therefore - warranty = over.

If they re-org, and even while 'under protection', if you buy a car THEN, the warranty is valid as long as that entity is around.

considering the coat tails effect: If GM is as large as Ford and Chrysler combined (which is not that much of a stretch) and if the suppliers are supplying all 3 (which is about 100% true) and if the suppliers are not exactly flush with cash (again about true) then the failure of GM would almost immediately bring it all down.

Ford and chrysler unable to build a car, is as bad as unable to sell a car. IIRC Ford has a giant balloon payment coming up....

rick Wagoner using a corporate jet is not even an issue when stacked up against 3M jobs...

 

The three million jobs scare tactic is bogus and hopefully wont work. That number includes jobs down to illegal alien car wash workers. It also includes Japanese, German and Korean "transplants", not just the big 2.5, any automotive related job, no matter how remote. We use arguments like that all the time to justify big defense contracts to Congress. Its a well known ploy that sometimes works on dumb-*** politicians.

Jim

 

Subscribing...

 

Ford won't be the first as there in the best shape of the 3. If the union would work with them on restructing thier contracts, may not be a need for it.

 

Is it? I have seen firsthand the loss of jobs due to the 'drag' when factories closed:

Kingston NY, IBM closed a plant that employed a fraction of the residents and 20% of the people - bam out of work

Fishkill NY - ditto

Poughkeepsie NY: a scale/back slowdown - ditto

Endicott Ny: ditto

Flint Michigan: GM scales back a plant

(most of michigan): ditto

St Marys PA: about 1/3 of the jobs are in the sintered metals industry/heat treating for the auto manus, not including drag. If GM goes, the ENTIRE REGION closes - they say the walmart will even close. who heard of a walmart going under?

right now, in the US, you have *EVERY* department store chain save walmart in bankruptcy or teetering, ditto for EVERY consumer electronics chain, ditto for most home improvment chains.

[sarcasm]I am sure this will have no further effect[/sarcasm]

Or put another way: just how many people can McD's hire?

 

And the US economy can't survive by selling hamburgers to each other. Somewhere we need to actually manufacturer things. Without manufacturing there's no economy.

 

I sure wish big business would think about that as they send all the jobs overseas yet still count on Americans to have the money to buy things.

 

I agree Mark, if we loose our manufacturing base, were at the mercy of the world for our basic needs. It was our manufacturing base that won WW II, the way they were able to pour out planes, tanks, ships and other war materials. The failure of the auto companies will effect more than 3 million jobs. My youngest son works for a small factory that makes parts for ford and GM, but has no direct connection. How many such factories are there a round the country. Then you have the dealerships and thier employee's, you have the aftermarket parts suppliers. It would have a ripple effect that would reach from shore to shore and across the sea's. The 3 millon is those directly envolved with the big 3, there would be countless jobs that are indirectly connected to the auto industry. Tire whole sellers to detail shops would be effected. I don't even think we can comperhend how many lives the american auto industry touches, like banks and loan institutions. The list would go on and on, enough so to put us in an all out depression. Ford and Gm have enough plants a round the world to cause havic with foreign economy's. Anyway you look at it, the failure of the american auto industry wouldn't be a good thing.

 

If you look at things that way, its kind of funny that the big three didnt think of this before eh?

I mean ultimately it comes down to them getting themselves in this position (in one way or another).

 

A lot of good points in there, but I think you're wrong. We still use the airlines even after their chapter 11. I know it isn't quite the same, but there is a sunrise even after the darkest dawn. The point about being the first to go is good. It may get a lot of the customers to go to another brand, but what would happen if they all went at the same time? I'm also thinking about the fate of the union contracts after a re-structure. The big 3 could save a fortune if some of those legacy costs were to go away.

 

So let me get this straight. If GM reorganizes under C11, there will be NO cars and trucks, manufactured, sold or serviced in the USA, by anyone? That is the exact scare tactic that "Red Ink Rick" Wagner and the UAW wants everyone to believe so that taxpayer money can be used to continue business as usual. Look at the history of what happened to the British automobile industry and how government help "helped" them survive in the long run. Didnt Ford buy Jaguar and sell it to Tata? Jag still exists in the UK, but not under UK management.

Jim