Is Bankruptcy the Answer for Automakers?

By
The couch section they've put him in is actually 219 degrees Fahrenheit. Photo: istockphoto.com

As we wrote yesterday, our junkie automakers are back asking for another fix, as much as $21.6 billion in aid to stay afloat. But a lot of folks, who don't have a ton of faith that this new infusion of cash will ultimately do any good, suggest that maybe the automakers should just file for bankruptcy, an option the White House is not ruling out. Of course, GM and Chrysler argue that they'd need $125 billion to finance bankruptcy. Bah! It's a horrible situation all around, with no easy solutions — much like many of our country's other depressing, nightmarish problems.

• The Wall Street Journal editorial board contends that "[o]nly bankruptcy, painful as it may be, offers the tools and legal authority needed to force all stakeholders to change the habits that brought the companies to this ebb." Obama will help everyone if he "forces the hard decisions as soon as possible." [WSJ]

• Paul Ingrassia agrees that "bankruptcy will improve their chances of survival by relieving them of financial obligations that they can't afford" and would "give them a chance to survive, just as radical surgery, however painful, often saves the lives of sick patients." [WSJ]

• Mary Kate Carey doesn't think bankruptcy is "so bad" ("airlines seem to file for bankruptcy all the time"), but suggests that if we continue to support the auto industry, we "leverage our tax dollars and put a few strings on the bailout money" by moving away from gasoline-powered cars. [US News]

• Rosa Brooks says that "Detroit was in trouble before the economic crisis began because it couldn't produce reliable, efficient cars that people actually wanted to buy. Its restructuring proposals do little to change that." Bailing them out seems like throwing taxpayer money "into a black hole." [LAT]

• E.J. Dionne Jr. believes there are many reasons "to prop up our homegrown auto companies. The most important is that allowing GM and Chrysler to go bankrupt could be a triggering event that would make a very bad economy much worse." In addition, the troubles facing the automakers are a result of high gas prices and the credit crunch, and a "rare constellation of events should not be permitted to knock out such a large part of the country's Midwestern industrial base." It would be better to "accept the messiness involved in giving Detroit one more chance than risk the human and financial costs of letting the domestic auto industry implode." [WP]

• The Washington Post gathers opinions from economists and industry experts. Mark Zandi of Moody's says "taxpayers will get the best return on their money if bankruptcy is avoided." Andrew Grossman of the Heritage Foundation thinks GM and Chrysler should be allowed to "sink or swim" on their own. Daniel Weiss of the Center for American Progress believes that "the bridge and retooling loans can stabilize GM and Chrysler, save jobs and reduce oil use." [WP]

• Susan Helper claims the automakers' viability plans are missing "an honest, humble appraisal of why more consumers haven't wanted to buy their cars at a similar price point to their competitors — and a demonstration of how they intend to fix this situation." Nevertheless, "the industry is worth saving," if only because they "remain key to preserving 2 to 3 million manfuacturing [sic] jobs in states already very hard hit by the economic downturn." [Plank/New Republic]

• Ezra Klein agrees that it may be a "smart investment" to "preserve two to three million manufacturing jobs and all the jobs (nearby coffee shops and local hotels and Michigan Wal-Mart's and so on) that depend on those jobs." But we can't make an "enduring federal commitment to ensure that Detroit never perishes." [American Prospect]

• Jennifer Rubin doesn't expect the Obama administration to call for bankruptcy, as it "seems no more courageous than the Bush team and no more willing to defend the taxpayers." Instead we're likely "in for the long haul — spending tens if not hundreds of billions on a failed industry which employs fewer and fewer people." [Contentions/Commentary]