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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: bentway who wrote (165138)	11/19/2008 6:33:55 AM
From: butschi2	Read Replies (2) \| Respond to of 306849

"I think Chapter 11 is the answer for our auto makers. It's allows them to legally do a lot of things to shed costs that would be problematic otherwise. Hell, it allows them to not even pay their bills for 18 months! Not that they could do this with suppliers" If GM/F hit CH11 you get a chain reaction with many suppliers going Ch11 or BK because of $30 billion in credit from suppliers to GM alone. Thats huge and ugly and most is not insured in the USA. In Europe deliveries from suppliers to GM/F have been excluded from credit insurance in the last few days. Loosing money and shrinking size will drag down too many suppliers and most wont be saved because they are small in size and wont get a rescue package from somewhere. Many suppliers will be too small to save for banks/governemnt but the number of suppliers may be huge. This would devastate the supply chain in the US. It´s the same as saving Bear Stearns, Bear Stearns was not worth saving at all, but the consequences would have been dire, because of interlinkage through $7 billion in derivatives. Look what the $1 trillion in derivatives off Lehman have done to psychology around the world. This interlinkage in the auto world comes from the concentration of buyers and from HUGE (forced) trade credit from suppliers to car makers through payment terms of 90-120 days after acknowledgmentent of full delivery. Disrupting credit and while downsizing would kill most suppliers because of thin margins. If you have $100 revenue and 30% with GM you may loose money quivalent to 25% (90 days) of your yearly revenue with GM. Thats ~7,5% of all revenue. Coupled with downsizing their is no way big and small firms could survive this hit to their balance sheet without assistance from banks/goverment. Because of oversupply around with demand falling of a cliff, the supply would come from the still standing firms around the world and would a lot of supply would shift from the US to overseas.