We have been hearing from many experts that bankruptcy is the only viable option for the automotive companies to emerge from their current troubles. The costs for bankruptcy far exceed what the automotive companies are currently asking for, but there are some estimates out there that state either routes are a wash, costing up to $125 Billion.
So now there is an alternative to Chapter 11. It’s called Chapter 10. It isn’t legal yet, but Justin Hyde of the Detroit Free Press writes:
It’s not the kind of new chapter in the history of General Motors Corp. and Chrysler LLC that executives have in mind, but two bankruptcy experts unveiled a plan Thursday for a "Chapter 10" bankruptcy tailor-made for automakers.
While it’s just an idea, at least one prominent member of Congress, Rep. Barney Frank, D-Mass., has raised the possibility of changing federal law to allow automakers into bankruptcy while minimizing the damage to the rest of the economy.
"Chapter 11 for a ‘too big to fail’ company, such as a Big Three automaker, could be disastrous for the country," said George Kuney, a law professor at the University of Tennessee College of Law, and San Francisco bankruptcy attorney Michael St. James, in a paper for the American Bankruptcy Institute Journal.
Their so-called Chapter 10 plan would allow bankrupt automakers to keep paying suppliers for a regular flow of parts. Under current law, an automaker that filed for Chapter 11 would stop paying many bills for months or years, and suppliers have to compete with other creditors for repayment.
"By arbitrarily and unnecessarily putting all accounts payable on hold for months or years — a mandatory aspect of existing Chapter 11 law — the bankruptcy filing of one large company would likely result in cascading business failures among its vendors, and the vendors of its vendors," Kuney and St. James wrote.
Their proposal would keep regular payments to employees out of court while leaving other parts of the bankruptcy code unchanged, allowing the automakers to force new contracts with bondholders, dealers, suppliers and unions.
Of course, while the companies could survive, many people would lose their jobs, their homes, their livelihood. An article in the New York Times has this to say:
After closing plants and shrinking their blue-collar work force, Detroit’s troubled Big Three are cutting white-collar jobs in their hometown at an unprecedented pace — more than 15,000 in the last year, with more to come.
White-collar workers who walk out of the headquarters of the auto companies face few prospects in the Michigan economy. And with G.M. and Chrysler surviving on federal loans, facing a deadline Tuesday to submit new and broader restructuring plans to the government, the outlook grows only more bleak.
The market for the skills of auto engineers or designers in the prime of their careers has evaporated, with no hope in sight for a turnaround. Moving to another city is hardly an option when there are so few buyers for the suburban homes that would have to be sold first.
G.M., Ford and Chrysler have eliminated a total of 120,000 manufacturing jobs in the last three years. And now the cuts are drastically thinning the ranks of white-collar professionals, turning the once-bustling office towers of the companies into half-empty monuments to better days.
G.M. delivered another blow last week when it said it would reduce its global salaried work force by 14 percent, or 10,000 workers this year. In the Detroit area, that could mean an additional 3,000 workers will be out of a job by May 1. G.M.’s next round of white-collar cuts will not include buyouts. Chrysler has not said whether it plans more cuts.
The Detroit area housing market, already deeply depressed, has plummeted since the buyouts. In January, the foreclosure rate increased 102 percent from the same month a year earlier in Oakland County, Mich., home to a huge number of G.M. and Chrysler employees.
The state’s unemployment rate was 10.6 percent in December and continues to climb. Job fairs routinely create mob scenes, drawing thousands of out-of-work employees of the Big Three and their suppliers.
The unemployment rate for white-collar occupations in Michigan was 5.4 percent in the fourth quarter of 2008, a full percentage point higher than the national average for those jobs, according to Department of Labor estimates.
Now before anyone out there thinks it cannot happen to them, think again. I didn’t think there was going to be any problems, and in a matter of weeks, the bottom fell out, and I had to make some very difficult decisions (and the outcome is still pending). It can happen to anyone in any industry. If you do not think that this is the case, talk to people who have had plants close in the textile, steel, and machine tool industries.
And the government is going to help after letting all these other industries fall by the wayside. Why am I not impressed nor hopeful? Perhaps it’s because I know how government works, and the way committees are. Both are like mating elephants – lots of noise and it takes two years for the results to show up.