With the recent $700M treasury backing of a number of financial institutions here in the USA, there’s obvious pretense now for politicians to spend our money elsewhere in the economy (because the first $700M worked so well). With the obvious worry and underlying lack of confidence of the average American consumer, the two Presidential candidates are looking for last minute “quick fixes” to gain support for their candidacy. In addition, Auto executives praise both Obama and McCain for their call for a faster distribution of the loan. Both McCain and Obama realize that there will be both economic and emotional consequences to a failure or bankruptcy to the likes of GM or Ford. Both companies are currently in a fight for their lives, struggling to find ways to survive the poor sales and terrible credit situation many Americans have put themselves into. On the bright side, Ford still has well over $26B in cash equivalents and GM has over $21B (due to the last 7-10 years of spectacular growth and solid profit surpluses). These reserves, even with the most grim estimates by financial analysts, should be enough to last Ford and GM through the end of 2009. Should there be a more dire situation (and it’s prudent to always assume the worst), both auto makers have access to numerous lines of credit and have been aggressively restructuring and laying off workers to minimize their overhead as much as possible in the tough times. In addition, 2010 will see drastic cost reductions due to the fact that many of their healthcare and pension liabilities to retirees and union workers will be reduced under a new labor deal. GM has made it clear that, ”…bankruptcy is not an option GM is considering.” according to Renee Rashid-Merem, a GM spokeswoman.

Consider the fact that bankruptcy will not only harm the GM brand, but the filing would have adverse effects on the residual value of new and used cars, current GM warranties and selling inventory still on GM lots. This would make consumers gravitate to other, more stable carmakers. Whereas companies like Delta or K-Mart could use bankruptcy as a means for escape of an unmaintainable financial situation, GM and other brands that plan to continue in the foreseeable future need to present a degree of stability to their potential clients.

The LA Times recently reported that just two weeks ago President Bush signed off on a plan to guarantee $25 billion worth of low-cost loans to U.S. automakers and suppliers, a crucial lifeline at a time when borrowing at any price is almost impossible for large companies. Representatives on both sides of the aisle have supported these loans, loans that would otherwise be impossible to secure from any other means. If no one else (no other bank, the best financial minds in the world perhaps) is willing to lend this money Ford and GM, how does the US Federal Government think it can help (considering their complete lack of regard for their own financial book balancing)?

So, that leaves the unimaginable, Ford or GM going bankrupt. GM representatives cannot will themselves out of bankruptcy. If the marketplace for credit for the average American does not change by the time GM and Ford’s credit and current cash runs out, bankruptcy will be the only option. However, as a recent article on Jalopnik pointed out, it’s not a crisis of brand. It’s a countrywide issue affecting all car companies:

“For the first time in the history of the company, the crisis isn’t product. It’s clear GM’s figured out the need to design and build high quality, fuel efficient and attractively-designed vehicles. Not only have they realized the need to do it, they’re actually doing it. Even the most jaded auto enthusiasts, journalists and industry analysts with even the slightest clue have to admit they’ve stepped up their game in the past few years.”

Here is where the bright side comes in. GM has a competitive product. Ford isn’t quite there yet, but they are making strides to bring many vehicles from their European markets that fit right in with cars like Yaris, Aveo, Camry and other standard names that fall into the inexpensive, fuel efficient and reliable category. Just look at the new Focus and Fiesta.

GM and Ford have a long way to go. They have survived terrible times in the past and the government is going to try to do all they can to make things work. The fact is though, GM is making good cars. They are trying like they never have before. Last year when Toyota surpassed them as the #1 automaker in the world, they realized that they had to stop trying to market cars for the sake of marketing and start making real cars that people wanted to buy over the (foreign) competition. Because of that, if GM does make it through this current climate unscathed, they’ll be in a much stronger position than they ever have been before. So where does this leave Senator McCain and Obama? Well, their hearts are in the right place, but time will tell whether their heads are. The free market will decide if GM and Ford are destined for the big junkyard in the sky. I have a feeling though, it’s not the Federal government or the next president that will keep GM from the pain of bankruptcy. It will be a combination of smart managers, an growing product line with solid products and the will of the American people to keep The General’s door open.