Thursday, December 4, 2008

Banking On Bankruptcy

Yesterday I discussed my reasons for believing that the Big 3 automakers weren't going to make it, bailout or no bailout. This morning comes the news that GM and Chrysler may indeed be considering bankruptcy in order to secure a bailout.
General Motors Corp and Chrysler LLC are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multi-billion dollar government bailout, Bloomberg reported, citing a person familiar with internal discussions.

In response to automakers' bailout plea, staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the sector without liquidation, Bloomberg said.

General Motors and Chrysler could not be immediately reached for comment by Reuters.

Industry executives and analysts say the immediate carnage from a bankruptcy of General Motors Corp, Ford Motor Co or Chrysler would spread throughout an industry that is bleeding cash in a global slowdown.

All three automakers have urged Congress to authorize $34 billion in loans and credit lines, saying they will restructure, and cut models, jobs and executive pay to remain viable.

My argument stands: would you buy a car from GM or Chrysler right now knowing the company is going to be facing bankruptcy?

I'm betting the answer to that is no. We're looking at the end of an industry here.

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