Could Uncle Sam Save Detroit?

With stocks in both General Motors and Ford sinking to historic lows, it’s clear that Wall Street thinks bankruptcy is a serious possibility. While no one is calling Wall Street “the smart money” these days, investors are right to worry about Detroit’s liquidity crunch. It’s very real. Ford is better off, having mortgaged its assets to get cash in the bank before the credit crunch. GM didn’t see around the same corner and will have a tough time raising more money to weather the storm.

What will happen? If car sales remain this weak, GM, Ford or Chrysler could end up in bankruptcy court in the not-too-distant future, analysts say. For its part, GM says bankruptcy is not an option. The company will fight hard to avoid it. If GM does stay out of Chaprter 11, the plot will track something like an Indiana Jones movie. That’s especially true now that overseas markets, where GM has actually made money and generated cash recently, are slipping into recession. Only a sales turnaround in North America or a helping hand from Uncle Sam may pull one or all of them back from the brink.

Don’t discount a government bailout. First, Congress and Pres. Bush have already greenlighted $25 billion for carmakers to use to develop and build fuel efficient cars. Don’t be surprised if that green capital becomes operating capital. The government could even approve another $25 billion in loans for Detroit to stave off bankruptcy. That was already bandied about as part of the energy bill a month ago. Bailouts are about as popular as Wall Street executives these days, but keeping Detroit on a lifeline is a relative bargain next to the $700 billion of rescuing the banking system.

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