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The House of Bush told reporters this morning that the administration is looking into an "orderly" bankruptcy for General Motors and Chrysler that would be part of an overall rescue package. One possible plan is to give the two automakers enough cash to make it through the next few months (essentially the bailout funds that GM and Chrysler pleaded for in front of Congress) and after that time a federal overseer would sit down with the executives and other interested parties to discuss filing for Chapter 11.
White House spokesperson Dana Perino said during the press conference that "...the president is not going to allow a disorderly collapse of the companies... [it] would be something very chaotic that is a shock to a system. There's an orderly way to do bankruptcies that provides for more of a soft landing." Perino quickly added that no final decision has been made.

The plan would likely include major banks providing debtor-in-possession financing for GM and Chrysler (Ford isn't part of the plan), and would require serious concessions from the UAW, stakeholders, suppliers and investment banks.

[Source: New York Times]


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  • 48 Comments
      • 6 Years Ago
      This plan is intended to give time to create an orderly structure to what would otherwise be a chaotic mess. More importantly, it provides the perception to buyers that the companies affected aren't disappearing and therefore are OK to buy from. Washington and Ch 11 will provide protection from circling debtor vultures, and allow GM (maybe Chrysler too) to pay off existing debts, keep suppliers doors open, and continue investing in R&D. Its a pretty good compromise, even if it means lean times ahead for Detroit.

      I remain skeptical if the long-term result will be more nimble companies that can deliver a wider range of products that help better buffer against changes in both the market and taste. Here's hoping.
      • 6 Years Ago
      NEWS reported this blog fails to mention

      Besides the billions of dollars taxpayers give offshore nameplates, notice you also gave up American land, building schools of non English language and firing American workers in their USA plants and sneaking in illegals under a VISA and then not leaving this country

      In the ongoing power struggle between Republicans and Democrats, Detroit is the latest, and possibly the bloodiest, battleground. And because it is a battle of ideologies with no apparent connection to pragmatic economic reality, the matter of whether the U.S. auto industry survives takes a backseat to which party gets its way.

      That's because the two parties see the fate of Detroit as a watershed moment, the kind of event that could potentially redraw the political landscape forever. By refusing to bail out General Motors and Chrysler,

      Republicans see a way to end the last vestiges of unionism in America and the unions' longtime backing of the Democratic party — a political base the Democrats will fight tooth and claw to save. If neither side can win — if they destroy the American automobile industry in its entirety and if in doing so they set off a chain reaction that turns out to be the last straw for our shaky economic system — they don't care.

      How can that be? Simple party politics. Because if these individuals bring down the American economy by destroying Detroit, they'll simply walk away from the disaster saying "It was the other guy's fault."

      Somewhere along the way this debate seems to have overlooked the fact that Detroit, for all its blunders, is still a viable economic engine, providing jobs to millions and creating some of the world's best cars. For example, the best-selling vehicle in America, even in this downturn, is still Ford's F-Series truck, and second place goes to the Chevrolet Silverado. Even the Dodge Ram continues to hold a strong position in the Top 20 vehicle list, while sales of the Toyota Prius are down substantially with the fall-off in gasoline prices. (We assume that the Prius is the type of car the left wants Detroit to build.)

      And speaking of Japanese cars, I hate to point out the obvious, but car sales in Japan are lower today than they were 15 years ago, down over 30 percent just last month. Yet you won't see the heads of the Japanese auto companies on the carpet in front of their government officials, being drilled with questions like, "Why don't you build cars the public wants to buy?"

      What's amazing is that Senator Richard Shelby (R-Ala.) is such a huge critic of using taxpayer money to bail out Detroit. Amazing because the state of Alabama has provided hundreds of millions of taxpayer dollars to lure foreign auto companies to build factories on its soil.

      Of course, when Alabama gave Mercedes-Benz $253 million to build a factory there, or about $168,000 per job created, that was considered a good thing. When Honda considered building a new factory there, that was worth $158 million, and Hyundai's Southern site choice forced the state to cough up $234 million more. Again, these were considered wise investments because the promise was that they would create more jobs for the chronically underpaid Alabama workforce. However, in the summer of 2003, Mercedes brought in Polish workers on questionable B-1 work visas to expand the factory because they could be paid far less than the local workforce.

      So you had Alabama gifting state tax dollars to Mercedes' factory, only to discover that some of the jobs it created went to much cheaper labor imported from Eastern Europe.

      Look at Senator Bob Corker of (R-Tenn.). The former mayor of Chattanooga was one of those responsible for winning the new Volkswagen factory at a cost of $577 million in tax incentives. Moreover, Tennessee got that factory only because Alabama offered the Germans a mere $385 million.

      Mississippi paid $284 million for a new Toyota plant; Kia got $324 million from Georgia. Texas had to fork over only $133 million for Toyota's Tundra plant in San Antonio, while Tennessee gave $197.6 million not for a new Nissan factory but simply so Nissan would move its American headquarters to Nashville. There are other factories — BMW in South Carolina, Nissan in Mississippi, and so on — but you get the point.

      The Republican senators from these states see no problem whatsoever with paying to bring new automobile production to their states, and the media always quotes them gloating about how smart it is to spend that type of money because it creates jobs.

      The reality is that there's no end to the tax largesse handed out to some of the most successful car companies in the world. And you know their names: Volkswagen, Toyota, Honda, Nissan
      • 6 Years Ago
      Ford SHOULD be included, if only because this will still cause them harm since they all share suppliers and scaling back their cash flow and capacity will surely hurt them.

      Both GM and Chrysler need to scale back to Honda levels - 1.5 to 2 million per year for Chrysler and 4 to 6 million per year for GM should be their global goals.
      • 6 Years Ago
      2Matty,

      "this country was founded on lasseiz-faire capitalism. It is truly "un-American" to ask for government intervention in the economy, if you consider our political culture"

      Where to start? First, in a globalized economy there is no free-market unless everyone plays by the same rules. American companies compete in a world where we are the only industrialized country that doesn't provide health care to it's citizens so employers bear the burden. We open our borders to everyone's imports while our trading "partners" block our access to key segments of their markets. We debate allowing our industrial base to be outsourced while our competitors protect theirs. So where is the free market in all of this? We're in a game where others play by a set of rules that advantages them and hurts us and guys like you call it "free trade."

      As for it being un-American to ask for government intervention in the economy, you will NEVER read an economic history of this country that doesn't talk about the wide variety of ways that state and the central governments have helped this economy develop. Given that I suspect you've never read any economic history at all.
        • 6 Years Ago
        My Princeton doctoral education isn't SO derelict that it's neglected to tell me about Keynes and what government intervention in the economy can do. Like I said, I think Detroit could benefit under a bailout. That said, telling consumers to buy American is backwards. If there are better products on the market, consumers should buy them. Anything less is sub-rational.

        I'm not some sort of free market cheerleader. However, domestic automakers know exactly with whom they are competing. It's no secret that foreign companies don't have to provide healthcare and other benefits that foreign governments are willing to provide. The Big 3 could have remedied this situation by making better cars. Like I mentioned before, GM, Ford, and Chrysler are going bankrupt in a country in which there exists social pressures to "buy American." That is just pitiful and is proof positive of poor management.
      • 6 Years Ago
      @Matty,

      "My Princeton doctoral education isn't SO derelict that it's neglected to tell me about Keynes and what government intervention in the economy can do."

      Apart from mentioning Keynes, did your Princeton doctoral education also tell you about the role the central government played in aiding the development of our economy with respect to the following:

      Doubling the size of the country in 1803 through the Louisiana purchase; acquiring California, Arizona, New Mexico, Colorado, Nevada and Utah in the war with Mexico; clearing said lands of their native inhabitants along with the land east of the Mississippi as well of course; buying Alaska and annexing Hawaii; using the Army to protect settlers moving into the frontier territories and protecting those who built the transcontinental railroads and telegraph system; selling government lands cheaply and in some cases giving it to settlers; establishing the land grant colleges; taking part of Columbia, renaming it Panama and building the Panama Canal; building the dams that brought water to the desert Southwest; Rural electrification that provides cheap electricity to much of the South and it's transplants; building the interstate highway system;

      And lest we forget:

      Basic research and defense spending that's given us among other things the internet, space based communications and navigation, nuclear power, microchips and the elimination of diseases that still routinely kill people in the developing world, universal education, ports, airports, trade routes free of piracy (more or less anyway), the Fed, the SEC, a court system that enforces contracts between private parties, the GI Bill that opened the way to college educations for millions following WWII;

      and, many other things that are fundamental to the continued development and functioning of our economy.

      So there's more to it than Keynes. But maybe your doctorate wasn't in history.


      • 6 Years Ago
      I love how it always has to be "Buy American". And how anytime people mention that, overall, the number of quality cars of foreign manufacture outnumber those of domestic manufacture. I'm not saying there are not Ford, GM, or Chrysler vehicles that are worthy of my dollar. For me, there are not domestic vehicles are are MORE worthy of my dollar than their imported counterparts. Ford in particular has a number of vehicles I would love to buy, and were I in the market for a full size truck they more than likely would have a sale from me.

      The simple fact of the matter is that yes, Detroit put themselves into this situation. While they may have remedied their product lines stagnation, it seems too little too late. It is much easier to lose a customer than win one back. Every company makes a bad car now and again. But when you do it over again, and over, and over... people remember, and when you come crying back "I've changed, baby I've changed!" it is not hard to imagine being met with apathy.
      • 6 Years Ago
      So the white house looks the other way when govn't owned Fannie and Freddie start down a road to disaster and when they finally collapse and no one can buy cars they force our most important manufacturing company into bankruptcy, and right when the company was effectively restructuring to boot. Unbelievable.
      • 6 Years Ago
      Japan's automakers have been pushing Detroit closer to the brink for decades. And now that the brink is finally here, the Japanese are watching the climax unfold with equal parts relish and horror.

      There are the gloating headlines: "Driving the Cadillac dream through to the end."
      And the inevitable ribbing of gas-guzzling "Ame-sha," the pejorative Japanese term for hulking American cars.

      Of course, you also hear the howls of hypocrisy hurled at companies that once lectured Asia on free-market ideals but now shamelessly scrounge for government handouts.

      Yet lurking beneath the triumphant ballyhoo is the fearful acknowledgement that the Detroit 3 in bankruptcy court could bring more headaches than competing against them.


      Consumer backlash?
      Honda President Takeo Fukui said as much this fall when he warned of a potential consumer backlash against Japanese brands. But more recently, the worry is that a hollowed-out U.S. supplier base will torpedo Japanese transplant production in the most important market.

      That alone warrants a U.S. government bailout, says Fukui: "I hope they will give support to the three companies so that they would be able to recover by themselves in the future."

      Japanese pundits, meanwhile, point out that after Japan's economic bubble burst in the 1990s, Nissan Motor Co. was sold to foreigners. They ask: Do Americans consider General Motors too good for such a fate?

      Mitsubishi Motors chief Osamu Masuko was bemused when asked about a U.S. bailout.

      Yet overall, the grudging verdict here is a resounding "bailout now."

      Japan's normally ultraconservative Sankei newspaper urged Congress not to "stand by idly" while the world's biggest economy tanks. A depression in the United States would have "immeasurable impact" on all Japanese exporters, not just the car companies.

      Japan supports bailout

      And many Japanese wonder: Why shouldn't Washington step in?

      That a smug Japan clearly sees itself as the winner in its decades-long war against Detroit is not in question.
      But most here would agree it's too soon to call it "Game Over."
      • 6 Years Ago
      soft landing or not, you still hit the bottom
      • 6 Years Ago
      $700 billion for Wall Street.
      $0 for Detroit.

      You will be telling your children the days you drove an American-made car down the highway. Your children wouldn't understand since all cars sold in the US would wear foreign badge.
        • 6 Years Ago
        @Frylock350

        I have a friend that works in a plant that makes craftsman tools. Believe me when I say there's not an American that works there.
        • 6 Years Ago
        @ hypermiler

        You may need to get your ideas straight for a better argument. You can easily buy an American-made car with a foreign badge. Camry. Tundra, etc.

        If you want to make that argument, maybe American-based is the best way to go with that one?

        Oddly enough, my Scion is 100% Japanese both in parts and manufacture. I guess that makes me an unpatriotic asshole. That's fine by me though, I wouldn't trade it for any similar American branded car in the US.
        • 6 Years Ago
        Daddy? What's a Corvette?

        I hope that would never happen...
        • 6 Years Ago
        @Chris: Wow. well put!
        • 6 Years Ago
        @Chris

        Thank you.
        • 6 Years Ago
        Most companies come out of bankruptcy much stronger and leaner.

        If they do it right (i.e shed the UAW), you could be telling your grandkids about a time when "foreign badged" cars once dominated the landscape.

        Chapter 11 is your friend. Use it!
        • 6 Years Ago
        Chris,

        There were lots of American clothing companies to choose from until NAFTA. As soon as that was passed, the entire textile industry base in the US collapsed. The companies either joyfully moved overseas (or south) in search of higher profits, or were forced to in order to remain competitive. I witnessed this first hand as my father was forced out of job after job as factory after factory closed.

        Now, you have to search long and hard to find US-made clothing. It's still out there in small quantities, but major retailers rarely carry it.

        So, with autos you still have a choice, with clothing, not so much.

        I think it's completely un-American to say that buying a foreign car is un-American. Freedom of choice is what it's all about. However, it's just as un-American to dismiss domestic autos as inferior without giving them a fair shake when buying.

        I'll never believe that my fellow countrymen cannot produce world-class products. We just need to change some laws so they can do so at competitive costs.
        • 6 Years Ago
        How do you know they're not American? Has anyone checked their identification? And if they are not American, do they have work permits? If not, why hasn't someone turned them in?
        • 6 Years Ago
        Wouldn't you rather give your money to the POOR in Japan than the RICH in america?I demand my vehicles be produced overseas so I don't have to contribute to all those lazy americans in Michigan and Alabama.
        • 6 Years Ago
        I should clarify by saying there's no one on the floor that's American. They're all here on work visas from Vietnam. It's kind of sad how little they make. Earn minumum wage to do pretty hard work. I'm not really a pro-union person, but seeing people like that makes you think twice about their role.
        • 6 Years Ago
        Driving a Scion doesn't make you unpatriotic. ;)
        • 6 Years Ago
        @ack,

        Or you could buy an American-made American car with an American badge like Malibu or Silverado.
        • 6 Years Ago
        Mike, I couldn't have put it better myself but I must add:

        Wage shrink. It's not just for unions anymore.
        • 6 Years Ago
        Compy, I'd still rather have the factory here in the United States even with foreign workers as long as they're legal. Perhaps they'll choose to become American citizens and that kind of opportunity is what this country is about. I certainly hope they're being paid a legal wage and the proper taxes are being paid. I'm certain they deserve more.
        • 6 Years Ago
        "Buying American" when you sincerely believe that there exists a better product for the money is irrational behavior. While I understand that one can derive noneconomic utility from owning something made in his or her country of origin, something as serious and expensive as a car purchase should not be taken so lightly. Before committing thousands of dollars to a very essential piece of machinery, consumers should shop around and consider products made in many countries. One of the beautiful things about the global economy is the ability for good products to enter any market and for the best products to win out. Think about this: American cars are selling poorly and the Big 3 are considering bankruptcy protection DESPITE the incredible patriotic, "buy American" sentiment in this country. To be selling so poorly despite noneconomic incentives to buy means that the products must truly be seen as inferior to foreign competition.

        I find it ironic that Americans are chided for embracing the free market and buying what they feel is the best product when this country was founded on lasseiz-faire capitalism. It is truly "un-American" to ask for government intervention in the economy, if you consider our political culture. That said, I've been rooting for some federal money to go to the auto industry because I think it may actually have the potential to produce good products once some of the top execs are removed (and likely replaced with individuals who have successfully managed foreign car companies).

        The free market is a core American principle. Freedom of choice is a core American principle. Blind allegiance to a company because of its place of origin is not a core American principle. Consumers should shop around and buy the best car for their money. I did; I bought German.
        • 6 Years Ago
        Actually, we'll be telling our children someday that America was an Economic Super Power that lasted a short 60 years and we got to enjoy the finer things in life such as two cars in our garage, because we supported one another and realized that our neighbors made money by working at the local factory and in turn they bought goods or services from your company and you made money, so life was good. But at the turn of the century we got greedy. We wanted cheaper, disposable goods and we used "Union" as a punchline and ridiculed everthing that was made in America. So we watched reality TV on our Chinese made LCD televisions because it was easier than watching the world pass us by.

        So to those of you who sit on your high horse and say "F#@K the Big 3", I ask how secure is your job? Because the alarming unemployement rate in the midwest is coming to your hometown soon.
        • 6 Years Ago
        How is an orderly bankruptcy not a bailout? They get to dodge out on their billions in debts and obligations while still continuing to get financing because the government is gonna make the banks loan them money.
        Deleting billions and billions in debt then giving you new loans is the same as paying off their old loans for free, except it's even better since it lets them renegotiate all their contracts since the old ones get broken by the bankruptcy.

        It's better than a regular bailout that leaves them saddled with obligations.
        • 6 Years Ago
        Actually, most of us won't be telling our kids about the days we drove an American car down the highway because a lot of us own foreign brands. Just like how you didn't give a crap about clothes being made in the US and you went to Walmart/Sears/Macys/Bloomingdales and bought all of your clothing from companies outsourcing to small island countries. Or how you buy most of your electronics from foreigners. I doubt you have a RCA product in your entertainment system. I know I don't. The whole buy American thing is so played out and such a hypocritical joke.

        I do support the US industry, when they make good products. And the sad thing is they are making great products: Pontiac G8, Ford Fusion Hybrid, even the fugly but interesting Chevy Volt.

        But please stop the whole trying to guilt others into buying products. I'm sure you didn't care about US textile workers or electronics factories. Where were you then?
      • 6 Years Ago
      An you American car haters and union bashers are going to
      get exactly what you deserve.

      - No more America cars
      - No more Unions



      WELCOME TO THE DEPRESSION!
        • 6 Years Ago
        I dunno, this sounds pretty good to me.

        Shut down the junk, but keep the suppliers going so Ford doesn't go under too.

        So no more UAW, GM, or Chrysler? What is depressing about that? Sounds like a reason to celebrate!
        • 6 Years Ago
        The great problem with the internet is that it allows losers to express opinions and thoughts that are even more worthless and meaningless than their lives. If GM and Chrysler go down further increasing the trade deficit and the sense of besiegement of the middle class America will go down the same path as the British Empire. The U.S. should not suffer this fate merely because a bunch of whiny gen x'ers don't feel they get paid as much as they should. I'm a libertarian and even i realize the market is not always right. A completely service based economy leads one to the fate of Iceland. A country needs to make stuff that does stuff.
      • 6 Years Ago
      WELCOME TO THE DEPRESSION
      Dave Is So Right.
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