GM and Ford Bankrupt by 2010?

The economists have been warning us. The wild eyed Internet doomsday bloggers have been screaming it.. The US government first denied it but now are sending mixed signals. The great white elephant standing in front of every American is slowly being noticed. Americans are starting to believe the US economy is cracking.

This economic crisis has already claimed many victims. Indy Mac a large western bank just collapsed and was taken over by the FDIC. Now it looks like it has its sites closer to the heart and soul of America. The two great icons of American economic power since the fall of Nazi Germany are beginning to collapse.
General Motors and Ford the two largest automakers are almost bankrupt. Their vehicles are known and used world-wide. They have been the standard in the automotive industry for almost a hundred years. They have led in innovation and popularity. The once stable rocks of America have according to some economists grown into nothing more than a retirement and health insurance provider.

The unimaginable might just happen sooner than anyone thinks. GM and Ford have a near 50% chance of going under in the next five years according to Edward Altman a finance professor at New York University's Stern School of Business. Professor Altman explained that a bankruptcy occurs when a company runs out of cash and cannot refinance its loans.

For those of us who do not have a economics degree the concept is simple to understand. Just as individuals cannot get loans with bad credit, companies that have bad credit ratings cannot get loans either. In today's market of fast spending and debt accumulating, if GM or Ford cannot get the loans they need the twentieth century automobile titans will sink fast and hard. The loans they need at the rates they need are just at their fingertips. But in their financial state the loans they need are just out of reach. With the current banking crisis where banks are even afraid to lend to each other there just is not a bank that will give them the loans they need.

The great divide could become greater. GM is in worse shape than Ford losing over $38 billion in 2007 and not making a profit since 2004. Their ability to get needed loans is decreasing as time goes by. Moodys Investor Service and Standard and Poor's both recently warned they may lower GM's rating.

According to financial experts the forecast for the United States economy looks bleak and long term. It could spiral down and continue that way another ten to fifteen years. If that is the case we may well see the collapse of two the most influential companies of the twentieth century. The only hope they have is if banks open their vaults to them or if the US economy heals itself before the gloomy five year deadline is up.