It is official. The government can only go so far to change the rules of the game.
Attempts to save two of the Big 3 automakers from bankruptcy are unraveling with news that certain Chrysler bondholders are resisting efforts to restructure the company. Without that support, the company headed to bankruptcy court.
That doesn't mean the end of Chrysler, but the move will have a huge impact on the industry and does not bode well for fellow maker General Motors (GM). The good news for investors is that Ford (F) will emerge the big winner and is a great buy.
What Chrysler means to you
The problem is that the government is trying to negotiate a deal that does not fairly compensate bondholders for risks they took when they originally invested. The deals on the table do not go far enough in providing equity stakes to those with the highest claims on company assets, the bondholders.
This outcome should come as no surprise to anyone. If I was a bondholder, I would be fighting tooth and nail for a priority claim on the assets of the company. If indeed the company is planning on emerging from bankruptcy, I want to own it.
It is all rather plain and simple. Unfortunately the government, in bailout mode, feels differently.
This mess has been a waste of time and money. The automakers that have been struggling since the beginning. Politics got in the way of capitalism, and that is never a good thing.
I’m not suggesting that there should be no role for the government. In the case of the financial crisis, government intervention was truly the only option to prevent Armageddon. Allowing one or two automakers to restructure in bankruptcy did not come close to meeting that level of crisis.
We were all duped, and now government loans appear to be at risk. In fact, one could argue that the intervention has only complicated matters and extended the time it will take to sort everything out.
The big winner is Ford
That bodes well for Ford. Given that GM is likely to follow Chrysler into bankruptcy, Ford will absolutely be the big winner in all of this. The U.S. automaker that isn't broke now also has a huge competitive advantage. And you can bet it will take advantage.
Don’t listen to the noise about dominos falling here. It is not going to happen. What will happen is that we will have three automakers that ultimately survive, but in far different shape and form.
Ford will be at the top of that food chain and should be owned by those wanting exposure to this volatile and risky industry. I rate Ford a B or buy.
At the time of publication, Louis Navellier held a position in Ford.
Attempts to save two of the Big 3 automakers from bankruptcy are unraveling with news that certain Chrysler bondholders are resisting efforts to restructure the company. Without that support, the company headed to bankruptcy court.
That doesn't mean the end of Chrysler, but the move will have a huge impact on the industry and does not bode well for fellow maker General Motors (GM). The good news for investors is that Ford (F) will emerge the big winner and is a great buy.
What Chrysler means to you
The problem is that the government is trying to negotiate a deal that does not fairly compensate bondholders for risks they took when they originally invested. The deals on the table do not go far enough in providing equity stakes to those with the highest claims on company assets, the bondholders.
This outcome should come as no surprise to anyone. If I was a bondholder, I would be fighting tooth and nail for a priority claim on the assets of the company. If indeed the company is planning on emerging from bankruptcy, I want to own it.
It is all rather plain and simple. Unfortunately the government, in bailout mode, feels differently.
This mess has been a waste of time and money. The automakers that have been struggling since the beginning. Politics got in the way of capitalism, and that is never a good thing.
I’m not suggesting that there should be no role for the government. In the case of the financial crisis, government intervention was truly the only option to prevent Armageddon. Allowing one or two automakers to restructure in bankruptcy did not come close to meeting that level of crisis.
We were all duped, and now government loans appear to be at risk. In fact, one could argue that the intervention has only complicated matters and extended the time it will take to sort everything out.
The big winner is Ford
That bodes well for Ford. Given that GM is likely to follow Chrysler into bankruptcy, Ford will absolutely be the big winner in all of this. The U.S. automaker that isn't broke now also has a huge competitive advantage. And you can bet it will take advantage.
Don’t listen to the noise about dominos falling here. It is not going to happen. What will happen is that we will have three automakers that ultimately survive, but in far different shape and form.
Ford will be at the top of that food chain and should be owned by those wanting exposure to this volatile and risky industry. I rate Ford a B or buy.
At the time of publication, Louis Navellier held a position in Ford.
