The last word from Washington is that Congressional staff and some car company executives understand that pre-packaged bankruptcies of GM (GM) and Chrysler may be the only effective ways of saving the companies.
The news shows that there is a growing admission that putting $20 billion or $30 billion into car firm rescues won’t cut it.
According to Bloomberg, "General Motors Corp. and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout."
No one should be shocked. The two companies say they need money in the next three weeks to stay in business. Getting any closer to a Chapter 11 filing or a Chapter 7 liquidation would be impossible.
The disadvantage of a pre-packaged bankruptcy is that it takes time. Someone has to talk to all of the debt-holders, the suppliers, and the UAW. Suppliers may say they cannot take less money for their goods without falling into liquidations of their own. The UAW may draw a line in the sand. A labor walk-out could screw the entire process.
The only real alternative is the coward’s way out. That means giving The Big Three most or all of the money that they want and assume that they will not have the leverage with the people they owe money and the people they have promised jobs. That should be abundantly clear in a month or two. It would give the federal government some time to walk GM and Chrysler through their reorganizations by wiping out common shareholders and many individual investors and organizations which hold bonds or debt. It buys time to beat sense into labor and suppliers.
Part of the issue with getting the auto industry right is that the car company executives lied to themselves for too long. Those lies left their headquarters buildings and made it to shareholders, workers, and parts companies. The basis of the lies were simple. The Big Three had cut enough expense and had enough access to capital to survive a downturn. The only honest-to-God change of heart about those views is when the auto company CEOs got ready to travel to Washington to beg and plead for capital.
Living the lie will cost everyone something whether its is jobs, stock holdings, or lost receivables.
If wishes were horses, all the beggars would ride.
Douglas A. McIntyre
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