Whenever I hear the CEO of a company -- particularly a company that I own shares of -- declare that "bankruptcy is not an option," frankly, I cringe. Too many times that "not an option" option becomes the only option.
That's why I found myself wincing the other day when I head Ford (NYSE: F ) CEO Bill Ford Jr. announce that "bankruptcy was not an option" for the storied automaker. As a shareholder, what had seemed like a tenuous but manageable problem now appeared far more critical. After all, Ford was profitable on a worldwide basis last year (its third straight year of profitability), even though it suffered horrendous losses of $1.6 billion at its North American division, and it has $32 billion in cash sitting in the bank. So why even bring up the bankruptcy issue?
And only a day or so ago, General Motors (NYSE: GM ) also said that "bankruptcy is totally out of the question." It seems to me that GM's problems are far more intractable than those at Ford, considering that it lost more than $10.5 billion last year. Not only is the company reeling financially, but with its auto parts suppliers in near-revolt, it faces the prospect of strike that could permanently cripple the company.
When you have executives in disparate industries making similar claims, it's troubling enough. But when two of the premier American automobile manufacturers declare within days of each other that a trip to the poorhouse is not being considered, I begin to think that these are troubled times, indeed.
Of course, anyone who has tuned in to the automotive industry with even passing interest recently would know that U.S. automakers are in crisis mode. High labor costs have always been a millstone around their necks in the competition against foreign manufacturers, and generous pension and benefit costs have saddled them as well. Throw in the crisis that faces their parts suppliers, and it's easy to see why the B-word is on executives' lips these days.
GM's supplier Delphi declared bankruptcy last year -- after asserting that it wouldn't -- following the example of a number of companies in the industry. Collins & Aikman foreswore the bankruptcy option just before declaring it, and they followed Tower Automotive, Intremet, Citation, and Meridian Automotive Systems in petitioning the courts for protection. It remains to be seen whether Ford's supplier Visteon (NYSE: VC ) will do likewise.
I believe that Ford's situation is different, though. As troubled as I was to hear Ford bring up bankruptcy, the company does have some footing, even if it rests on shifting sands. Despite a drop in market share from 26% to 18% over the past decade and a reorganization that entails plant closings and layoffs under its Way Forward plan, Ford's weak spot is its North American division. If it succeeds in turning it around, it might just make discussions of bankruptcy a thing of the past -- and avoid becoming another car wreck.
Head to the impound yard for these related Foolish articles:
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- Ford Takes a Bullet for Visteon