Bankruptcy's a quicker end to GM woes

A GM sign on a steel beam above a highway

TEXT OF STORY

Tess Vigeland: Analysts say the administration seems to be paving the way -- the final miles, if you would -- toward bankruptcy for the struggling carmakers. There's been lots of debate about what bankruptcy would mean for an industry that craves and lives on customer loyalty. Even with government-backed warranties, can you be sure your '08 Chevy will have a mechanic around in 10 years? Our senior business correspondent Bob Moon says it might just be the quickest route toward ending the companies' long and painful journey.


BOB MOON: Bankruptcy experts say Chapter 11 protection would actually help the carmakers. Lynn LoPucki is a bankruptcy law professor at UCLA. He says they could purge themselves quickly of some of their most pressing financial burdens.

LYNN LOPUCKI: As a practical matter, it's just much faster, much more certain, to go into bankruptcy, do what you've got to do, and get out.

LoPucki says it could take forever to bargain with bondholders and other creditors, but bankruptcy judges have the power to force resolutions.

LOPUCKI: If you're outside of bankruptcy, everybody thinks of it as a compromise situation: We're going to get what we're entitled to and something more to get us to go along. If you go into bankruptcy, they don't get the something more.

Harvard law professor Mark Roe says bankruptcy protection could also help the automakers trim down their product lines.

MARK ROE: That means they've got to renegotiate or terminate their relationship with a lot of dealers. That's going to be easier to do in Chapter 11 than it is outside of Chapter 11.

Roe says bankruptcy wouldn't necessarily make the ripple effect for parts suppliers any worse than it is now, since sales are already way down. And UCLA's Lynn LoPucki doubts warnings that bankruptcy could scare customers away. He questions what's worse.

LOPUCKI: To buy a car from a bankrupt company, than to buy a car from a company that should be in bankruptcy but doesn't know enough yet to know that it needs to be there.

He points out the government will now guarantee GM and Chrysler warranties for new car buyers. Harvard's Mark Roe says combine that with stronger companies emerging from bankruptcy protection, and their situation certainly looks better than the alternative.

ROE: Bankruptcy's a last resort, but we've reached that.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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