Report: White House Considering Bankruptcy Option For G.M. & Chrysler
By Doug Mataconis | Related entries in Business, Cars, EconomyOf all the news that could come out of the White House regarding aid to the Big Three automakers, this is perhaps the most encouraging:
WASHINGTON — The White House said on Thursday that an “orderly†bankruptcy was one option being considered to try to rescue General Motors and Chrysler, which are seeking billions of dollars to avoid a shutdown.
President Bush’s spokeswoman, Dana Perino, confirmed growing speculation within legal circles that the president and Treasury Secretary Henry M. Paulson Jr. were considering the step as part of an overall rescue package for the automobile industry.
The action would be unusual, and would require concessions by the United Automobile Workers union, suppliers, investment banks, the federal pension board, bondholders and other stakeholders in the two auto companies.
Unusual ? Perhaps to the extent that the government would be involved, but this sounds to me like the kind of pre-packaged bankruptcy that was being discussed last month:
The prospect of a managed bankruptcy for one or more of the companies has been explored for several weeks, dating back to an original request by the car makers to the Treasury Department for money from the Troubled Assets Relief Program. Mr. Paulson rejected that request, prompting the auto companies to appeal to Congress.
G.M. has retained Harvey R. Miller, a long-time bankruptcy lawyer, as its adviser. It is also being advised by William Repko, a long-time expert in restructuring with Evercore Partners who has worked with companies like United Airlines. And, G.M. is working with Arthur B. Newman of the Blackstone Group, another experienced restructuring adviser.
Chrysler has retained the law firm of Jones, Day to provide restructuring expertise, while several law firms in Washington and across the country also have been retained by companies that might be involved in a bankruptcy proceeding.
However, any filing by either of the automakers would not be imminent. It could take three months or more to reach the type of agreements the government might require before the companies seek bankruptcy protection. That time could give consumers used to the idea of dealing with a car company operating under court protection.
Some analysts have warned that Americans might be leery of buying cars from any company that was operating in bankruptcy. But other studies have shown that consumers would be assured if the companies received federal assistance, even if they end up in bankruptcy protection.
This isn’t perfect, but if it happens, and if the Obama Administration follows through on it, it is probably the best alternative out of a whole series of really bad options, and much better than the idea of giving taxpayer dollars to these companies on the promise that they will reform themselves.
As for the timing of all this, President Bush said today that he would act before leaving office, so I’m guessing we’ll see something by the start of the new year.
This entry was posted on Thursday, December 18th, 2008 and is filed under Business, Cars, Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
December 18th, 2008 at 3:14 pm
I agree that it’s the best of the options. As I wrote in my blog back on November 15 (http://thepurplecenter.blogspot.com/2008/11/motown-aid-needs-some-big-mo.html):
“Of course, a bailout will have to have some very tight strings attached — perhaps on a scale we’ve never seen in this country before. The bailout process should be approached as if it were a Chapter 11 bankruptcy restructuring, with a special federal official (chosen for his/her detachment and skill), much like a bankruptcy judge, given wide latitude to force the companies and their employees’ unions to downsize, reshape cost structures, and focus on a return to profitable operations.”
And that seems to be what the White House has in mind.
December 18th, 2008 at 6:12 pm
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December 18th, 2008 at 11:51 pm
The four primary thoughts I have on a bailout of the “Big 3″ are
1) These companies represent the 20th century legend of the “American Dream”, our technical ability and know-how.
2) China (and other foreign investors) would love to own them.(Oh no!)
3) These are companies that actually make(!) something, by golly, they are one of those endangered beasts, the American manufacturer. They are also one of the few opportunities for ordinary folk to be productive and make a decent wage at the same time.
4) And, finally, it would be good for a cushion of time to consider how much the “loan” should be and what strings should be attached to the money so that ‘We the People’ can be sure that our money is used wisely and responsibly while these companies get their act together, a very different scenario from the Wall Street bailout.
December 19th, 2008 at 6:06 am
John,
I agree, but rather than something “just like” bankruptcy, there’s no reason this cannot proceed through the Bankruptcy Courts
June 14th, 2009 at 6:49 pm
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