The Coming Meltdown

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What has received somewhat less coverage, however, is what will happen now that the Big Three have received at least some of the money they’ve been asking for. And the result isn’t pretty. There are some significant structural problems with the US auto industry that suggest anything short of bankruptcy reorganization won’t work. And even a traditional bankruptcy might not help.
The three biggest problems facing the auto industry are dealership agreements, retirement/medical funding issues, and the impact of a bankruptcy filing on consumers’ purchasing decisions. The first two issues have been discussed in extensive detail in the media. I want to talk about the third issue, bankruptcy, and how the Big Three can have their cake and eat it too.

The main concern voiced about GM, Chrysler and Ford filing for Chapter 11 reorganization is the perceived impact it will have on consumer buying. “If we file for bankruptcy,” the argument goes, “no one will trust us to be there for warranty or repair work, and they won’t buy our cars.” But there is a way to accomplish everything a Chapter 11 can do—including modifying dealer agreements and labor contracts—without filing for Chapter 11.

How? It’s rather simple and obvious, really, and simply plays upon the power and impact of…words.

Since it is the word “bankruptcy” that scares everyone, rather than the reorganization benefits that Chapter 11 offers, have Congress pass a new law, say the “CAr Manufacturer’s Employment and Reorganization Act of 2009” (“CAMERA”), which allows the Big Three to do everything a Chapter 11 allows, without calling it a Chapter 11 or a bankruptcy. In other words, the statutory provisions that a Chapter 11 provides for would be largely copied, placed in a new statute, and called something other than bankruptcy, making it a statutory reorganization without bankruptcy.

Read the full article at The Bankruptcy Law Network

Date published: Jan 05, 2009

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