Automakers One Step Closer To Chapter 11


By all reports, the Obama administration is willing to let the Detroit automakers slide into Chapter 11. Given his support from the unions and the midwest once-industrial states, early on he was obviously on the side of the rescue. But perhaps the eye-popping price tag coupled with bailout fatigue has led him down a different path.

According to the Journal, the Treasury has already started plans to line up $40b in bankruptcy filing, should it come to that.

Of course, with the Treasury lining up the DIP financing — and thus likely offering generous subsidies and guarantees to the lender — the government will be able to preserve the structure of the automakers as they are now. The government will try to save as many union contracts as it can, as well as the general relationship between the companies and the UAW.

In otherwords, even if the administration supports “bankruptcy” we still doubt they’ll support an outcome that would actually involve the companies getting ripped apart.