Obama May Throw Autoworkers Under the Bus

The incoming president is thinking of allowing the auto industry to go through bankruptcy rather than relying on a government bailout:

Nov. 21 (Bloomberg) -- President-Elect Barack Obama‘s transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry’s financial crisis, according to a person familiar with the matter.

Obama’s team has already contacted at least one bankruptcy- law firm to say that Daniel Tarullo, a professor at Georgetown University’s law school who heads Obama’s economic policy working group, would call to discuss the workings of a so-called prepack, according to this person. ...

In a prepackaged bankruptcy, an automaker would go into court with financing in hand after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed. The process might take six to 12 months, compared with two to five years if the automakers followed an ordinary Chapter 11 proceeding and worked out agreements under a judge’s supervision, Bane said.

Automakers would have to depend on government financing to restructure in bankruptcy court and probably couldn’t attract private loans until they were ready to emerge from the process, Bane said.

Officials of the three automakers told members of Congress this week that they had studied a pre-arranged bankruptcy, championed by Republican lawmakers such as Senator Bob Corker of Tennessee, before dismissing the idea as unworkable.

“We have looked at all aspects, whether it’s a prepackage, whether it’s prenegotiated,” Chrysler CEO Robert Nardelli told a Senate committee on Nov. 18. The options are all “more negative” than restructuring as a condition of receiving federal aid, he said.

While I personally think the bankruptcy route is preferable, I'm not sure all those union auto workers who voted for Obama will agree. Any bankruptcy deal is sure to include significant concessions by the unions in the form of reduced pay and benefits for existing workers, and reduced benefits for retirees. Neither will be very popular to a group of people who have been led to believe by their employers that they would enjoy these overstuffed benefits for the rest of their lives.

Bankruptcy certainly has its risks for the overall state of the U.S. auto industry. How comfortable would you be buying a car from GM, Ford or Chrysler right now? How confident would you be that when your car needs parts or repairs there will still be parts available for it or repair facilities that can handle it?

Imported cars are already stacking up in U.S. ports because of the general decline in sales. Should the U.S. automakers end up in bankruptcy, the importers will certainly find themselves in demand again. Those huge parking lots now choked with Toyotas, Nissans, Hondas, BMWs and Mercedes Benz' will be perfect for storing all those unsold Fords, Chevys and Chryslers.