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Chapter 11 For GM, Chrysler?

By Armen Hareyan on 2008-12-04

Some 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.

It is a growing admission that putting $20 billion or $30 billion into car firm rescues help.

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. Read: Chrysler Threatens World Order

The disadvantage of a pre-packaged bankruptcy is that it takes time. The debt-holders, the suppliers, and the UAW must all be consulted. 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.

The only real alternative is 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 clear in a month or two. It would give the federal government some time to take 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 real change of heart about those views happened 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.

Reported by 24/7 Wall St.

linked article: http://www.247wallst.com/2008/12/the-recsssion-m.html

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Comments

#1 Car Industry and Bankruptcy

Submitted by Anderson (not verified) on 2008-12-04.

I am wondering how come the Japanese Car Industry is not going for Chapter 11, because they are making better cars. The Big 3 just needs to learn how to make better cars. Big is not better. How come Toyota and Honda are not begging the congress for bailout?

Don't get me wrong, my heart goes out to the workers who have the sad prospect being jobless, but before we bailout the carmakers we need make sure they have a plan to make japanese-like cars. Whatever it takes.