On the heels of GM closing 20 US plants for a couple of weeks and Chrysler shutting down all plants for a full month, President Bush has said, and Dana Perino, Press Secretary confirms, that Bush is considering an ‘Orderly’ bankruptcy for the Big 3. In a very detailed AP report, Bush admitted there were dangers in the process and said he has made no decision. He even mentioned a ‘federally directed’ process. [My question: How is that done? Does Bush mean he can somehow take over the Federal Bankruptcy Court and predetermine their actions? The Constitution says we have three branches of government not two.]
Because none of this would be happening if the credit markets hadn’t closed and Wall Street fallen on it’s face why does the President consider the most dangerous option of them all? All of the automakers could have made it without government involvement if the credit markets, destroyed by Bush Administration policies, were open. I repeat, NONE of the Big 3 would have been at the governments door in normal circumstances. NONE of them, along with all the imports, would have taken massive hits in sales starting in September, if the Wall Street scare hadn’t occured.
In the eyes of many, the fact that this option is on the table means that the White House just doesn’t get the problem.
Here’s the question: Would you or I buy an expensive big screen plasma television from a company that is in bankruptcy? It’s an expensive item.If the company is in bankruptcy, even with a ‘predetermined’ outcome, how could we believe in their maintenance and warranty contracts?
We aren’t senior secured debt holders. We would be at mercy of the court to instruct the company to honor it’s warranty contracts. The court might not order that option. We have no way of knowing.
So, again, I ask the question would you buy an expensive electronics item if the company was in bankruptcy? I wouldn’t. My guess it that you wouldn’t either.Then how can we assume, in the face of polls that show that nearly 50% of the American pubic would refuse to buy from a company in bankruptcy, that sales will continue and, with this immediate recession shock behind us and credit again flowing, that sales will increase.
The ‘prepacked’ bankruptcy process that has been used successfully in other circumstances was based on the concept that routine credit facilities would be available while in bankruptcy reorganization.
The auto industry knows that is not the case today. Where would be the credit they need simply to operate in the best of times? In a situation where the credit markets are so tight that larger businesses, as well as small, are unable to get credit even with the best of operating results what is the guarantee that those credit markets are suddenly going to open for the Chapter 11 bankruptcy of GM and Chrysler?
It’s a ridiculous assumption and one that could be deadly for ten’s of thousand of workers. If the markets and the politico’s are freaked out at reports of 539,000 lost jobs in a month how are they going to react when it’s double or triple that number?
In my next article an expert speaks out about the fallacy that Detroit makes simply bad cars.