NO DEBTOR-IN-POSSESSION FINANCING ALSO KILLS DETROIT 3 BANKRUPTCY OPTION

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Chrysler's bankruptcy consultants say that it would take over twice as much "post-petition financing" to restructure in Chapter 11 instead of obtaining government-backed loans.

The larger problem: Who in the private sector could or would pony up the billions necessary for operating loans to the "debtor-in-possession?"

The "let'em file bankruptcy" crowd doesn't have an answer for this problem.

Bankruptcy would be a death spiral. Without "DIP" financing, the bankrupt automakers would be totally dependant on the immediate cash flow from sales. Yet automaker research shows that many consumers would lose confidence that a bankrupt automaker would stay around long enough to make replacement parts and honor warranties. Moreover, the same credit crunch that dried up "DIP" financing has crushed the consumer financing market. Thus, revenues would spiral ever lower with no means to "ride out the storm" until the cost cuts kick in and sales start rebounding.

WILL SMALL CARS SAVE FORD?

Jesse Snyder of the Automotive News makes some interesting observations about recent declines in small car sales and a slight uptick in light trucks. He concludes:

For all the summertime rapture about changed American behavior, small-car sales are flat so far this year (which beats all other segments). And pickup volume is down a quarter, but all pickups still outsold all small cars.

His hypothesis is that long-term shifts in demand are slight and slow.

If true, does that bode ill for the business plan that FoMoCo submitted to Congress? Ford anticipates a long, irreversible shift to small cars. 95 percent of Ford's platforms in 2015 are apparently going to be powered by smaller, turbocharged EcoBoost engines. Ford intends to pour vast sums into the electrification of automobiles. As many as three truck plants will be switched to build small cars.

Of course, all of this "green talk" is calculated to appeal to "Green" Democrats and "Energy Independence" moderates. But when the retail market returns (and it will because the current fleet cannot last forever) will Ford be properly positioned to take advantage? Or will the government-managed restructuring hamper FoMoCo's ability to supply the larger cars and trucks that many Americans still need and/or want?

Some of the problem will likely be addressed through anti-carbon legislation and regulations. The greens want carbon-based energy prices to be high. The greenhouse gas reduction targets of the OBAMAcrats cannot be met without serious and expensive energy market meddling. That might eventually play into the hand of the Detroit 3 -- at the expense of higher gross profit truck and high-performance auto segments.

Another wild card is health care. Obama is committed to radical, anti-free market "change" toward the liberal goal of "universal coverage." If the OBAMAcrats are successful in creating a nationalized system, perhaps the Detroit 3 could obtain some cost relief by spreading their health costs across the entire auto industry, if not the economy as a whole. Nothing in the current discussions suggests that anyone is advancing the off-loading of the Detroit 3's VEBA obligations. But it's possible that a national health care system could increase costs on the Japanese invader plants and help "normalize" the Detroit 3's costs.

It's surprising that some liberal incrementalist has not proposed an "auto industry health care plan" that would force the transplants and non-unionized suppliers into a pooled "ObamaCare" health care insurance system. Such a plan would be noxious to conservatives and would lead to higher retail vehicle prices. But it would accomplish what the UAW failed to -- impose much of the Government-created Detroit 3 cost structure on its major competitors. And such as system would be another incremental step toward Obama's "single payer" health care goal.

Small cars might work for Ford if the Obama Administration holds true to its rhetoric. If not, hopefully FoMoCo's production plans will be flexible enough to compensate for market swings.