Liquidity Fuels M&A, Autos' Revival

Meanwhile, a group of private equity investors, including Appaloosa Management, Cerberus Capital Management and Harbinger Capital Partners, are joining with Merrill Lynch and UBS Securities to finance auto parts supplier Delphi's(DPHIQ Quote) emergence from bankruptcy in a $3.4 billion deal. The company is expected to emerge from bankruptcy in the second quarter of 2007.

While $3.4 billion is hardly the largest auto-related financing these days, the announcement is a reminder of how much the auto industry has ridden the liquidity boom and how far it still has to go ... fundamentally.

The incredible performance of junk-rated General Motors'(GM Quote) securities this year and the tremendous financing just accomplished by also junk-rated Ford(F Quote) are the ultimate evidence of excess liquidity in the financial markets. But their ability to take advantage of the friendly marketplace in 2006 does not erase the reality that the biggest threat to these companies' solvency lies ahead.

At the end of 2005, investors were endlessly debating if, when and how GM would go bankrupt. Nearly 12 months later, GM's stock and bonds have returned over 50%. The company has cut costs, has shaken off Kirk Kerkorian and arguably is making better cars.

The new auto-related worry is Ford -- the subject of a Wall Street Journal article Monday, which described how the company's recent refinancing was better for debt investors than for its shareholders. Separately, Jim Cramer raised concern about a Ford bankruptcy in a video interview Monday on TheStreet.com.