Associated Press reports that the Bush administration is still exploring bailout options for U.S. automakers; but has suggested that U.S. automakers may have to face an “orderly” bankruptcy. Detroit’s big three automakers have suffered the most sluggish sales in 26 years and are quickly running out of cash. The Bush administration says they want to avoid an automaker bankruptcy if possible but have conceded that bankruptcy is a serious possibility.
Both the automakers and the United Auto Workers union strongly oppose any type of bankruptcy for the big three automakers facing financial trouble. According to the Associated Press, The National Automobile Dealers spoke out against bankruptcy “in any way shape or form, orderly or disorderly, prepackaged or unpackaged, managed or unmanaged.” According to the Bush Administration a “disorderly bankruptcy” would be a Chapter 7 bankruptcy which would completely shut down the automakers’ companies and require the sale of assets to repay creditors. A Chapter 11 bankruptcy on the other hand would be categorized as “orderly” allowing the automakers to restructure their debt obligations.
It’s unfortunate; but most likely Americans will need to prepare themselves for some financial shockwaves, because it is almost guaranteed that at least one of these automakers will go bankrupt. The automakers are already getting desperate as they do everything humanly possible to conserve cash by enforcing extended holiday shutdowns of their plants. Chrysler is closing all 30 of its North American manufacturing plants for four weeks, Ford will shutdown 10 North American assembly plants for an extra week in January and General Motors will close as many as 20 factories for the entire month of January. That doesn’t sound exactly orderly to me. When companies shutdown, close or go on “extended holidays” they don’t make money and when they don’t make money they’re just one step closer to bankruptcy.