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No bankruptcy for Ford (F) and General Motors (GM)

Posted August 25, 2008

“If Ford or General Motors, for example, ever filed bankruptcy, it would likely shift consumers immediately away from their products and to those of its competitors, further hurting revenue. Because that sudden loss of customers would make it nearly impossible for the company to recover from bankruptcy, a more likely scenario would be a recapitalization of debt, and favorable concessions from suppliers and unions to ease the financial burden.” — Christian Hill

by Christian Hill

Baltimore — (TFN):  “You make money when you buy, not when you sell.” So says the old adage. It’s especially important to keep this in mind in today’s market. Buying opportunities abound, and now is the time to take advantage of that and make your money.

I must admit, I have a soft spot in my heart for Detroit. That was where I was born and raised. And the entire southeastern part of the state of Michigan is dependent on the automakers staying in business. So whenever talk of the Big Three (or Two, if you prefer, since Chrysler is now privately owned) going bankrupt surfaces, I take note. But no matter what you hear, I believe the chances of them going bankrupt is very remote.

Here’s why:  If Ford (F:NYSE) or General Motors GM:NYSE), for example, ever filed bankruptcy, it would likely shift consumers immediately away from their products and to those of its competitors, further hurting revenue. Because that sudden loss of customers would make it nearly impossible for the company to recover from bankruptcy, a more likely scenario would be a recapitalization of debt, and favorable concessions from suppliers and unions to ease the financial burden. It could also mean that new debt sources could be found at more favorable terms.

The government, having bailed out Chrysler in 1979, is well aware of the consequences of a major automobile manufacturer going out of business. It wouldn’t just be GM or Ford going out of business. It would also mean the end for the hundreds of auto parts suppliers in the region, including Delphi, Visteon, and Johnson Controls. The trickle-down effect would be devastating. Read on to learn more.

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