The Next Auto Bankruptcy

As soon as I heard that GM and the United Auto Workers reached a deal similar on the merits to the Chrysler/union restructuring deal, I knew that the bankruptcy filing wouldn't be far behind. WaPo says next week, but more interesting than that, they claim that Chrysler will come out of bankruptcy as GM goes in:

The Obama administration is preparing to send General Motors into bankruptcy as early as the end of next week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and reemerge as a global competitor, sources familiar with the discussions said.

The move comes as the administration prepares to lift the nation's other faltering car company, Chrysler, from bankruptcy protection as soon as next week, industry sources said.

The shifts into and out of bankruptcy are landmarks in the Obama administration's attempt to broker a historic restructuring of the American auto industry in the space of months.

We're looking at $45 billion in loans, making it the largest investment in any company outside of AIG, I think. And the government would take 50% ownership in the deal. And the government is probably buoyed by the success and speed of the Chrysler bankruptcy, where virtually all the bondholders were eventually crammed down and the bankruptcy judge has expedited the process. Presumably they believe the same will happen with GM.

The loss of 2000 dealerships will really put a cramp on local economies. At least in Southern California, some cities have dozens of dealerships along a particular boulevard, and they account for a substantial portion of local sales tax revenue. These communities have already felt the pinch, but closure would devastate them.

Clearly the Administration has made up its mind that this is the best solution. But this is also why a robust public health care option must be invoked. The government has spent something like $55 billion on GM and Chrysler (with another $10 billion or so on GMAC, the financing arm). It could apply that to health care and suddenly make companies like them, and thousands of others, globally competitive.