Automaker funding

Wrong reasons, but right result

What to do…

Though the reasons that some Republican senators gave for not supporting the administration's hand-out to the automakers smacked of partisanship and dogma, the result was a positive one. The hope is that the Treasury’s anticipated funding from TARP won’t have the same result.

While many are predicting doom and gloom if the automakers don’t get funding, the reality is that it won’t be all bad. True, some will lose their jobs, and there will be difficulties for the related suppliers, however, letting them go into bankruptcy can be a good thing.

If properly structured, Chapter 11 for GM, Ford, and Chrysler can work. Very rarely these days do large companies go into bankruptcy without a carefully worked out plan for eventually coming out. Witness the airlines in years past. Granted, there are some issues that need to be carefully worked out, but they can be.

First, the TARP money should be structured as “debtor in possession” financing. The automakers have given the tight credit markets as a reason for not considering bankruptcy. TARP funding as “debtor in possession” financing gives the Treasury a double guaranty of getting its money back first.

Second, warranties need to be protected. As part of a bankruptcy, the buying public need to get the assurance that the automakers won’t use restructuring to alleviate themselves of their obligations. Doing so will also eliminate another reason to avoid bankruptcy.

Thus, Chapter 11 filings are a viable solution. The manufacturers will be given the opportunity to shed excess capacity, rationalize their products, streamline their dealership networks, and get their labor costs in line.

Once they have started down that road, they have the real potential of being viable profitable companies. It’s quite possible that once they have eliminated their excess costs they will be potential merger candidates with each other or with more successful automakers.