Two flat's and a fast leak

Back in January in my blog titled Fixing a Flat, I looked at the news regarding GM, Chrysler & Ford. In particular, I singled out Ford as being most likely to emerge out the other end of this tunnel.

Looking at the scoreboard, GM & Chrysler aren't doing well at all. On February 19th, they both requested more money from US taxpayers (see MarketWire) - more than US$20bn in fact.

In its restructuring plan submitted to the Treasury late Tuesday, Chrysler suggested that it believes that the “best option for the U.S. auto industry” would be a GM/Chrysler merger. I'm confused as to why neither GM nor Chrysler would do anything different in a merger that they couldn't both do in Chapter 11: namely cut their workforce, restructure debt and put a plan in place for a more basic existence than they are currently on - all aimed at surviving during the period of significantly lower unit sales.

In my view, the government funds might best be used to take over the pension liabilities that both companies would have to get off their balance sheets and avoid 'ownership' of any of these companies.

WSJ highlights that GM & Chrysler bankruptcy fears are already impacting their sales, whether they go into it or not.

Ford on the other hand, seems to be handling itself well given the circumstances. I'd suggest the tough task of negotiating labour costs with unions appears to be something they are handling better than GM & Chrysler (see TradingMarkets.com). It appears this is due to a better relationship between Ford and the unions (see iht.com)

At this stage, Ford is maintaining their position on not requiring government funds. DetNew's assessment seems pretty on the money:
"Amid bleak outlooks for the entire industry, the latest federal submissions by GM and Chrysler depict two companies whose prospects look worse today than they did two days ago. Ford's look pretty much the same -- seriously challenged, but no closer to asking for federal bridge loans than last week or the week before."
Forbes goes on to say:
"Ford looks like a survivor--but it is still a borderline case. Should a couple of other Detroit icons go down--not that anyone wants them to fall--then Ford would be the last American standing, which could be an advantage."

Let's hope they make it through without a handout from taxpayers.


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posted by Lee Gale @ 2:17 AM,

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