GM and Ford may be knocked out by Europe

IMHO there is NO hope of saving GM/Ford from bankruptcy. The question now is whether they can file Chapter 11 quickly enough in order to restructure and save as much enterprise value as possible. If not then we'll likely see millions lose their jobs in a Chapter 7 filing.

The suppliers of GM/Ford in Europe are immediately exposed and on their own now. Thus they're going to be demanding payment up front for all the work they're doing for GM/Ford. This means that Ford USA and GM USA are going to have to send a lot of money to Europe NOW or else their investments there will be completely at-risk of total loss. Neither is a good alternative because their stakeholders (i.e. bondholders, shareholders, retirees' pensions/benefits, etc.) depend upon ALL their assets in order to maintain a potentially healthy balance sheet.

In the USA its pretty straight forward that suppliers are ahead of bondholder/shareholders in line to get paid in bankruptcy. The courts know that enterprise value is best-preserved by having the suppliers/dealers continue to operate as normally/smoothly as possible. And since both companies have plenty of bonds right now the suppliers here in the USA aren't nervous YET. However in Europe its not the same, especially when involving foreign companies like GM/Ford.

I hope they file Chapter 11 in time to avoid Chapter 7. A total liquidation of both firms would be very messy and bad for the US economy. At least in Chapter 11 the business could continue running while the reorganization takes place. That's why GM and Ford must file Chapter 11 now.

Waiting for Congress to act is absurd. It'll do nothing to save their European operations. Now if Congress specifically mandates that the money must be sent overseas then it could help their suppliers get there insurance restored or keep the European operations going. But that's unlikely to happen as the Congresscritters would have a horrible time right now explaining a European bailout to the people back home. And letting their European operations collapse will cause their global enterprise values to take a huge hit. And IMHO that would be very bad news for the retirees and employees with lots of seniority because I think they are the ones who will ultimately end up owning the enterprise value of these companies once the shareholders/bondholders' claims are wiped out.

Any thoughts or is my logic flawed? I sincerely wish these companies' stakeholders (especially the retirees/employees) all the best. For an interesting perspective please read http://ml-implode.com/staticnews/2008-11-15_InsurerspullcoverfromGMandFordsuppliers.html