Or They Can File Bankruptcy

It's been another dour week in the domestic auto industry. Back on June 25, I suggested that GM and Ford abandon the North American market where their business model no longer works. My method was to issue stock for GM's and Ford's non-North American business where they are competitive. Bankruptcy could do something similar.

GM traded today at less then $10.00 per share. It has not traded like that since 1954. It's a big story but the year has nothing to do with it. Remember basic business and accounting, the company's stock price is taking the number of shares and dividing it up by the value. There were fewer shares in 1954 then there are today. So the company is not worth the same price as it was in 1954. But it makes for good headlines.

However GM's North American operations are essentially worthless. Same with Ford. Chrysler was worthless last year when it was sold off by Daimler to Cerberus. They actually had to pay money out to have them take 80% of the company off their hands. Cerberus is far more aggressive in slashing models and finding business partners to divide up the company's assets. Again, Chrysler will be sold as a distribution channel along with mini-vans and Jeep to a Chinese maker to get them into the US market. Chrysler/Dodge have no product that anyone is interested in anymore in any great volume.

If GM files for bankruptcy, Ford will have to follow suit. Why? GM's cost structure would change radically with canceled and re-negotiated contracts. Bankruptcy makes it much easier to shed factories, union contracts, excess dealers, retirees, etc. There is no way for Ford to overcome that cost advantage without having parity with General Motors. Bankruptcy by GM would be a nightmare for Cerberus.

Simpletons say, "They weren't building fuel-efficient cars, it's their fault!" Well, you weren't buying fuel efficient cars, were you, American public? GM and Ford build fantastic and stunning fuel efficient vehicles throughout the globe. Products you would say "huh!?" Ford makes that? Yes they do, and they are best selling, award winning, etc.

And they are coming here, if Ford and GM survive. It takes less then a minute to change the price at the gas pump. Re-tooling an assembly plant and setting up a supplier base, well...

BTW, Ford of Europe has announced it will be unveiling the 2009 Ford Fiesta Diesel with a 1.6 liter engine at the British Motor Show next month.

It gets 62.5 MPG on the highway.