ABC News’ Alice Gomstyn reports: In the dog-eat-dog world of big business, you don’t often hear about a company sticking up for a rival. Yet, earlier this week, Ford declared that it supported government help for General Motors and Chrysler, even while Ford itself said it could do without the short-term loans now under consideration by Congress.
Ford has made clear that it doesn’t want to see its cross-town competition put out of business ... but don’t start singing Kumbaya yet. On Ford’s part, it’s not exactly a selfless move. Among the Detroit 3, there is substantial overlap among auto parts suppliers, and if even one domestic automaker collapses, parts suppliers – which are already struggling because the automakers have cut down on production and their purchase of supplies in recent years – could find themselves going under, too.
“It would be customary for the (bankrupt automaker) not to make checks out to the suppliers for parts that have been shipped over the last two months and the supplier would lose all that cash,” said Craig Fitzgerald, an auto analyst at Plante & Moran PLLC in Southfield, Mich. “For many of them, that would be the straw that breaks the camel’s back -- that will either force them into bankruptcy or force them into liquidation.”
Without the suppliers, a surviving automaker -- ie. Ford -- would find it nearly impossible to get the parts it needs to keep producing its cars.
“It has the risk to potentially shut down many or all of Ford’s plants,” Fitzgerald said.
Ford has another motivation to help keep its competition afloat -- to meet future government fuel economy standards, the automakers may collaborate on developing fuel-saving technology.
“For those kinds of R&D projects, there’s no competitive advantage,” Fitzgerald said. “They’d just as soon share those costs.”
In the meantime, some, including “Bailout Nation” author Barry Ritholtz and Edward Altman, a finance professor at New York University’s Stern School of Business, continue to argue that bankruptcy is still the best option for the auto industry.
Both Ritholtz and Altman say that, through a bankruptcy, the government could take the role of “debtor-in-possession” and lend the bankrupt company money.
Through its DIP status, the government would later be first in line to get its money back, Altman said during testimony before Congress last week, while the bankrupt company would get more time to pay off other creditors and more flexibility to renegotiate its pension and health care claims.
It’s a better alternative, he said, to “a highly controversial government bailout,” which would not offer the same protections as a Chapter 11 bankruptcy filing.
And, Altman said, even with the government bailout, GM and Chrysler are “doomed to eventually file for bankruptcy” anyway.
“The management and boards of these two firms, which until recently have been in a state of denial, should face up to the reality of their dismal outlook,” he said.
Altman is one of many to criticize the management of the automakers and some -- including members have Congress-- have gone as far as to say that the companies' chief executives should resign.
There's at least one person, however, arguing otherwise: Lee Iacocca, the former president of Ford and the former chairman and CEO of Chrysler. Iacocca was at Chrysler's helm when the company lobbied -- and later received -- a government bailout in the late 1970s.
In a statement yesterday, Iacocca defended the Big 3's chiefs, saying that they were "by far the best shot we have for success."
“Having been there, I do not agree with the sentiment now coming out of Congress that the management should be changed as a condition of granting loans to the Detroit automakers. You don’t change coaches in the middle of a game, especially when things are so volatile," Iaccoca said.
“The companies may not be perfect but the guys who are running them now are the only ones with the experience and the in-depth knowledge and understanding of how the car business really works," he said. "...I say give them their marching orders and then let them march."