Perhaps it was inevitable, but the car companies fought it. Congress, and perhaps General Motors (NYSE:GM) and Chrysler, are discussing pre-packaged bankruptcies as a way to cut debt and labor costs while the companies get back on their feet.
It is probably a bad idea.
According to Bloomberg, "Staff for three members of Congress have asked restructuring experts if a pre- arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation."
Why won't it work? Several reasons. The first is that a bankruptcy plan takes time, the one thing Detroit does not have. A pre-packaged program means getting deals from labor, lenders and suppliers. That can't be done in a day, a week, or a month.
Next, some car parts suppliers are already near bankruptcy themselves. Asking them to take less money from GM and Chrysler could push them into Chapter 11.
Last, and perhaps most important, the UAW may not be willing to give up more than it has offered. It believes that it has done enough by saying it will defer car maker contributions to its VEBA plans and sharply reduce job banks. A proposal for them to take less may cause a series of strikes that could push GM and Chrysler into Chapter 7 liquidations.
Otherwise, the idea of pre-packaged bankruptcy is just fine.
Douglas A. McIntyre is an editor at 247wallst.com.
Reader Comments (Page 1 of 1)
12-04-2008 @ 9:57AM
JCH said...
Will I buy a car from a company in Chapter 11?
Never. I don't care who guarantees what. Never.
Are you listening W DC? NEVER. Make them into one car company, merge it with a Japanese car company with domestic content and finished goods requirements, and loan it the money.
12-04-2008 @ 10:23AM
art said...
They is something funny going on hear. I not sure the three aholes should be bailed out. How ever the impact would be
unbeleiveable but.The congress gave the banking people trillions with out these meetings and the car companys that the goverment had a hand in ruining also does not want to help them and they are asking for a loan not a hand out .wake up america but or goverment sucks lately. Its
like we were a taught from a young age if you bring candy to school have enough for the whole class.who the hell are they to pick and chews who gets saved and who does not. shame on them but hay come on relecting them. we do it our selfs we don't need a war we killing our self from with in.
12-04-2008 @ 10:32AM
Tina said...
To Art: I can't understand exactly what you are saying....did you use spellcheck?
My husband has worked for GM for 30 years and now has many health problems (not including two torn rotator cuffs in his shoulders) from 30 years of work there. Does that not count for something? He never made $80 an hour as some media reports. We're not rich...far from it. How the media likes to tear automakers down! The incorrect facts in the media are just amazing. My husband just went to work every day and did as he was told. If he worked overtime for six months and then was laid off for six months due to surplus inventory, who's fault was that? Not his. Wake up people! One in ten people's job depend in some way on the auto industry and it will be a trickle down effect.
12-04-2008 @ 11:14AM
JCH said...
Tina,
The US autos are competing with foreign car companies that have single-payor coverage - socialized medicine. It is significantly more efficient. Executives and economists who were screaming for worker productivity from your husband, were also opting for astonishing corporate inefficiency in healthcare delivery.
They fought socialized medicine at every turn for decades on end. Are you guys getting a bum deal? Yes, the worse. The gullible American people forced an incredibly expensive and inefficient health-care system onto the auto workers, and now the same dirty stinkin' rats are blaming the workers for playing the only game left to them, which was to achieve justifiable health benefits in the system that existed.
It stinks that they are demanding you give that victory up. It's low-down shiftlessness on the American peoples' part, but that is what they are.
12-04-2008 @ 12:11PM
art said...
The point I was trying to make is a myself have mixed feelings if they should be bailed out. How ever I understand the impact that it would have so noing that
we are forced to help. However the goverment has played a hand in hurt the automotive but now they do not want to help.But they helped the banking bussiness with out a problem no meetings no nothing. Now if that don't smell fishy to anybody then I say your out
of touch with whats happing here.
12-04-2008 @ 7:34PM
Grant said...
JCH... that comment is nonsensical. Who will buy a car from a company in the shape that GM is in right now anyhow? Everyone with half a brain knows they can't survive the month without a cash infusion.
People bought tickets on Delta and other airlines, months in advance, after it filed for Chapter 11.
Tina, sorry to hear about your husband, but that's America. Everyone has a right to succeed and fail. If you guarantee success you end up like the Soviet Union, with no one succeeding. That's the way free markets work.