By on November 21, 2008

Bloomberg reports that Obama’s transition team is exploring the possibility of prepackaged bankruptcies as a solution to the dire situation the Detroit Three find themselves in. According to an anonymous source, 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. And as the worm turns on the idea of a bridge loan, a prepackaged bankruptcy seems to be about where the middle ground shakes out to. So is Obama leading to the middle? Not openly, at least not yet. “That’s not true,” a spokesman for Obama’s transition team tells Automotive News [sub] of the Bloomberg report. So then is the story that Obama’s not exploring all the options? Or he is, but doesn’t want it publicized? From the sound of things at recent congressional beggary testimony, none of the D3 are willing to consider the possibility of bankruptcy of any kind. But if the their turnaround plans, due to Congress by December 2, aren’t convincing enough there will be bankruptcies. And not neat, pretty prepacks. Time to face the strange?

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12 Comments on “Bailout Watch 232: There Will Be Bankruptcies. Or Not....”

  • avatar
    Dr Lemming

    Obama tends to strive for a bipartisan position on controversial issues. The Detroit bailout could single-handedly destroy his honeymoon period, so it would make sense that he’d develop a plan b — particularly after the Collapsing Three’s terrible hearing performance . . . and mounting evidence that bankruptcy really is the only viable option.

    It would also make sense that the Obama camp would keep mum on a policy change that could lead to major rebellion among the auto unions and their allies in the Democratic Party.

    I guess we’ll have to wait and see.

  • avatar
    Stu Sidoti

    Obama…Man of the people!!! Oh No !!Say it ain’t sooooooooooooo….

    C11 prepackaged or not leads to C7 because….

    ” Would YOU buy a vehicle from a C11 automaker?”

    I would say that most of America would not especially when there are so many other good or great choices right down the street from non C11 companies…Hell, if they weren’t moving units in August when there wasn’t a credit crunch, how in the heck do you think they’re gonna move units when they have the bankruptcy albatross hanging around their neck?

  • avatar

    I find this may be the best compromise as the Dems need to suck up to the UAW and their voters as they are a major supporter of their party, yet not give the D2.8 a blank check which they will waste on their own accord (hehe). D2.8 need to go through bankruptcy to survive in the long term – if not they will lose more and more until they are so small and irrelevant that they will not get this helping hand to even enter bankruptcy.

    If McCain won he’d have taken a much harder stance but I’m hoping Obama goes down this road and pushes for a prepacked bankruptcy to help GM and Ford reorganize quicker and more efficiently as healthy companies with a going concern. Chrysler Ch 7 them out and sell off the assets. GM or Ford can Absorb Viper or Jeep.

  • avatar

    I find Obama’s leadership on this issue confidence inspiring.

  • avatar

    The brutal truth is that the only solution for GM is to slim down by eliminating brands, dealers, factories and workers. It needs to be sized for about 15 percent of the market.

    Chrysler is valuable only for its components – Jeep, the minivans and the Dodge Ram. It needs to be broken up and sold.

    And the Jobs Bank needs to go away for all three.

    If Obama can pull this off in the face of union opposition, it will be a miracle, and will earn him real respect, not just Tiger Beat-type adulation.

  • avatar
    John Horner

    I don’t buy the notion that any C11 filing = further crashed unit sales. Wagoner and friends have already scared the daylights out of potential buyers with their tales of gloom, so the consumer confidence issue has already sailed.

    An FDIC like instrument for automotive warranties would go a long way to reducing the risk in buying something from the Detroit Gang.

    Every honest person who looks at this situation knows that simply throwing a $25B “bridge loan” at Detroit is not going to fix the problems and is not going magically result in the three of them becoming viable businesses again. At best, it is a kick-the-can-down-the-field a few yards plan, particularly for Chrysler and GM.

  • avatar
    Mr. Sparky

    Pre-packaged bankruptcy… Same great taste with out the risk of forced liquidation if you can’t find debtor-in-possession financing.

    I like it. Heck, at this rate I’m going start going fanboy for the Big “O”.

  • avatar
    Robert Schwartz

    Prepack can work when you are dealing with a limited group of creditors and you are planning to pay any inconvenient sized group at par anyway. GM’s problems involve huge and fractious groups like the dealers and the UAW, and are not amenable to pre-packaging.

    Further no C11 can make Ricky-Bobby smart.

  • avatar

    I agree with John. People are not buying GM vehicles because of the uncertain future of the company and their inability to get financing. A C11 GM would be able to cut cost and prices, clear the decks, and reorganize. Get rid of the fear of the worst-case scenario and customers will slowly come back.

  • avatar

    Oi, no lawyers, please. The first 25 billions goes there. Then we will be talking what to do with retards from Detroit.
    I am ready to compromise. We know that government will pay unions and their plebes. Lets give them salaries till end of their careers and then they can retire. Management already took care of themselves. This is the cheapest solution I can come up with. Even if we pay union members to end of their natural life, it will be much cheaper for us, then them manufacturing the crap they manufacture.

  • avatar

    With all this talk about Bankruptcy as being a panacea, don’t forget that the Big 2.8 could very well F’ that up too. Success is not guaranteed.

    Let’s not kid ourselves, there is a pretty good chance that they will not change their fundamental business model, just cut off the union and creditors at the knees.

    For a recent example United Airlines comes to mind. They did not shake out enough costs and stuck to the same old business models – and they’re still struggling.

  • avatar

    ‘Survival not guaranteed’ Sounds like a ytmnd.

    This is why I took Bankruptcy Law class last semester…sadly Chapter 11 wasn’t my strong suit.

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