Congressional Leaders Want Bush to Help Automakers

[Kevin_Kennedy]

Of course the chief executive says that, what would you expect them to say? They want their stolen money as quickly as possible.

 

[tigerbob]

Good point, Ford could not survive long in Cpt. 11 but I don’t think they would need to. If Ford could have its contracts renegotiated under Cpt 11 and eliminated most of it liabilities from pension & post retirement welfare benefits, if would become a very attractive target for acquisition by either another auto manufacturer or (more likely) a large private equity group.

In 2007 Ford had 140B in liabilities, and 114B of these had to go with carrying expenses and future costs (mostly retiree benefits). Ford had about 285B in assets. With a cpt 11 Ford may be able to discharge about 70B in long term debt through contract renegotiations. That leaves a company with 118B in assets and 25B in liabilities for a market capitalization of $46 per share. As Ford is currently under $2.00 per share I am sure they would be snapped up very quickly.

I can't fault your numbers (I'm not numerate enough), and I have to say that on the face of it that looks very attractive. But we've all seen what happened the last time a private equity firm grabbed an auto, and I can't believe that any others would be likely to want to try in the near future.

However, if (if) it could get out of its pension and post retirement liabilities, I do not doubt that someone would buy it. Problem is they would never try to run it. They would break it up and depart through the nearest door, leaving several hundred thousand Ford employees out of work and millions of retirees with no pension.

And that's just Ford. GM and Chrysler are in a much worse financial position.

Then there is the indirect impact of the breakup of one or more of the big three. In Chapter 11, all payments to suppliers go on hold, which would undoubtedly drive many to the wall. What would be the impact of that? Well, the auto industry consumes (these figures are about 6 years old - I don't have anything more recent but I don't imagine they've changed that much):

Steel - 14% of total US consumption
Iron - 31%
Aluminum - 32%
Copper and Brass - 9%
Zinc - 23%
Plastics - 4%
Rubber - 68%
Textiles - 1%
Paint - 8%
Glass - 23%

I don't think many business models (particularly in commodities) can survive seismic shifts like that without coming under huge strain.

Chapter 11, in my opinion, solves a problem in the really short term, but generates even bigger problems in a matter of months.

 

[Turboswede]

I can't fault your numbers (I'm not numerate enough), and I have to say that on the face of it that looks very attractive. But we've all seen what happened the last time a private equity firm grabbed an auto, and I can't believe that any others would be likely to want to try in the near future.

However, if (if) it could get out of its pension and post retirement liabilities, I do not doubt that someone would buy it. Problem is they would never try to run it. They would break it up and depart through the nearest door, leaving several hundred thousand Ford employees out of work and millions of retirees with no pension.

And that's just Ford. GM and Chrysler are in a much worse financial position.

Then there is the indirect impact of the breakup of one or more of the big three. In Chapter 11, all payments to suppliers go on hold, which would undoubtedly drive many to the wall. What would be the impact of that? Well, the auto industry consumes (these figures are about 6 years old - I don't have anything more recent but I don't imagine they've changed that much):

Steel - 14% of total US consumption
Iron - 31%
Aluminum - 32%
Copper and Brass - 9%
Zinc - 23%
Plastics - 4%
Rubber - 68%
Textiles - 1%
Paint - 8%
Glass - 23%

I don't think many business models (particularly in commodities) can survive seismic shifts like that without coming under huge strain.

Chapter 11, in my opinion, solves a problem in the really short term, but generates even bigger problems in a matter of months.

Yup, it would need to be a planned transaction from the get-go and Ford would still be worth more as an operational entity (w/o ford motor credit) so I don't think the break-up would be that severe.

I don't mind government bailouts; I was all for bailing out the financial sector. But Ford's problem is easier to solve and just doesn’t require a bailout. If a true partnership can be forged between labor and industry Ford will be able to become profitable once again.