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My Two Cents

Chapter 11 for autos

Chris Farrell Feb 19, 2009

It’s time for the Administration to shift strategies on GM and Chrysler. The bailout isn’t working, and I don’t see how it will. Paul Ingrassia is a former Dow Jones executive and Detroit bureau chief for this the Wall Street Journal. He has a good piece on the auto bailout in Op-ed section of the Wall Street Journal (subscription required). The money quote:

GM justifies its bailout request by contending that a bankruptcy filing will cost the government $100 billion to guarantee pension payments and other obligations. But here’s the thing: The total of nearly $45 billion requested so far from the Treasury Department, the Energy Department and friendly foreigners gets us almost halfway to $100 billion, even if the company doesn’t request more money down the road — which one suspects it will. Without a bankruptcy filing, the issues with the UAW, dealers and bondholders are likely to remain unresolved. The same pain-avoidance motive that has kept these issues festering for years will continue.

This is just what Chapter 11 bankruptcy is designed to deal with. Don’t throw good money after bad. The government will have to provide back-up financing for the companies in bankruptcy. That’s fine.

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