GM and Chrysler could finally sink Ford
Ford Motor Co. (NYSE: F) could be moving closer to Chapter 11, and it is not because its financial situation has become more critical. The key player here is the federal government, which is reviewing plans to put General Motors (NYSE: GM) and Chrysler into Chapter 11.
According toBloomberg, GM and Chrysler may be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans. So far, the automakers have claimed such a move would destroy them. But government has hired an outside law firm to work on a bankruptcy plan, with the express purpose of getting as much back for the taxpayers as possible.
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 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 is the collapse of its supply chain. 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 producing vehicles, crippling sales. Ford would still have most of its expenses. The resulting losses would be too much for it to bear.
Douglas A. McIntyre is an editor at 24/7 Wall St.