Monday, July 13, 2009

Bankruptcy...the new Sales Technique

During my recent USA trip which included Detroit and various Michigan locations, it was quite obvious the impact of the current economic times, especially in the automotive sector. I am quite sure the government bailouts of the industry are not the way to go. Our government has now cleared the way to socialize the losses in Corporate America while privatizing the profits. Investors are OUT, socialized money is IN. Individual greed is OUT, big government and institutional funding is IN. In my mind this will allow huge coverups of both losses and gains. You will have to go many layers to rediscover the money trails in these new companies.

The biggest question to me is how it can be legal for companies like Chrysler and General Motors to file bankruptcy one day and reopen the next as a new debt free enterprise. The American taxpayers just invested billions in bailout monies of the old companies...and now those same companies are out of business and new corps have been established with mixed controlling interests of an Italian automaker, the labor unions and the US government. What happened to all the stock and bond holders in the old companies? Do they get pieces of the new companies? I would hope so, but I don't know so.

Then today I see the news related to the Chicago Cubs (Tribune Corp) filing bankruptcy in order to foster a sale of the team. So this seems to set the precedent that any business or company that gets "under water" in it's balance sheet can simply file bankruptcy to get out from under its debt and transfer all the good assets to a new entity...with the same brand name even. How is that legal or constitutional? And where will that freight train end? There are so many companies and businesses that are in the same can our economic system sustain so many failures? Is this the new way to establish market and valuation floors?

This program sounds good for new investors, including the new social bailout fund of the US government based on our tax dollars. But what about the wipe outs and devastation to all previous investors who can't now afford to invest at floor level? Their investment has been "written off", and now the same "leaders" that brought you General Motors, Chrysler, and AIG are still running the new shows...debt free. And once again AIG looks to pay out over $250 MILLION more in "bonuses" for the under producers. How do I sign up for that bonus program?

Personally I prefer the Ford model of running and doing business. They were the only company of the big 3 to invest BILLIONS in retooling and environmentally enhanced car technology over the past 5 years. They also put "rainy day" money in reserves and kicked the ass of both Chrysler and GM in sales in recent years. the way...their stock is trading at $5.64 per share at this moment from a low of $1.01 just a few months ago. Wish I had money from my busted technology stocks to have caught that rise. I worry a bit about their competitiveness against the newly debt free Chrysler and GM corporations...but seeing as how those new companies are largely still in the same hands as before, Ford probably has nothing to worry about. I'd still buy it at today's price versus invest in any of the other two companies. Believe me, the future is about management and global market understanding. Ford still has the edge there even if the other two companies got a free "restart".

I still say, with all the upcoming copycat bankruptcy filings, the economic impact that will have on North America is still anybody's guess...but I believe it will only prolong the "bottoming out" of our highly leveraged economic system. Still, if I am selling a company or business today that is heavily in debt, I am looking for the same right of "restart" the automotive, financial and sports companies are getting. Its only fair...

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