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Why won't the big 3 go Chapter 11?
5thGenTexan

Posted on 12/17/2008 9:11:09 AM PST by 5thGenTexan

I don't understand why the Big 3 auto makers seem to refuse to even consider Chapter 11.

Does anyone have any insight?


TOPICS: Business/Economy
KEYWORDS: bailout; frikkinvanity
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To: 5thGenTexan

My guess: Because someone would get a look at their books.


21 posted on 12/17/2008 9:40:55 AM PST by mewzilla (In politics the middle way is none at all. John Adams)
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To: Owen
The part suppliers who are owed money could demand payment and drain all cash

I'm not a bankruptcy expert, but I have been closely watching a certain corporate bankruptcy case. This one (The SCO Group) is probably abnormal since their aim appears to be to gut the company before they lose some more court cases they started, but I've seen how some things work.

First, the bankruptcy lawyers will get paid. But in that case I haven't seen any payments to any of the companies they owe money to during the normal course of business, except for their continuing office space (which, IIRC, they had to scale back).

22 posted on 12/17/2008 9:44:08 AM PST by antiRepublicrat
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To: mewzilla
I feel the same way. When Enron became a big news item everyone expressed shock at their funny accounting. Well, we've got banks doing debt swaps, we've got Madoff running a ponzi scheme, and now we've got GM basically saying "Don't look at my books! You don't want to go there!"

Enron was the canary in the coal mine.

23 posted on 12/17/2008 9:44:24 AM PST by ClearCase_guy
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To: 5thGenTexan

The biggest reason is risk to future sales.

Confidence in a car company that may not be around means people will not buy your product and get stuck with an orphan. For a long term durable good this is a bad place to be.

Which is why I have said for a while now, the fed should not bail out these guys, but let them declare Chap 11 reorg, and instead of paying billions out to the companies, simply guarantee their warrantees.

That way this fear is assaged, even if the company would go under buyers would still be guaranteed to have parts and warrantee work done. If they don’t go out of business (And they should not if they reorg) it costs the government nothing, and if they do the cost will still be far less than the billions they are talking about.

However this won’t pander to the unions because Chap 11 would nullify their contracts, and Dems would never allow that.


24 posted on 12/17/2008 9:44:37 AM PST by HamiltonJay
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To: ClearCase_guy
GM may be fixin' to make Madoff look like a piker...

Note to GM's shareholders: Can't say you weren't warned.

25 posted on 12/17/2008 9:46:32 AM PST by mewzilla (In politics the middle way is none at all. John Adams)
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To: antiRepublicrat

If they stick it to the taxpayers, and enough angry taxpayers decide to boycott all their products as a result, these companies are going to go down the tubes anyway.

Buy Honda!


26 posted on 12/17/2008 9:52:37 AM PST by Cecily
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To: PasorBob; 5thGenTexan
Management has billions in stocks and options.

Right, plus the top executives have lucrative employment contracts. A bankruptcy trustee who could set aside the UAW contract could also set aside other contracts.

The trustee might well decide that the company didn't need to keep paying big salaries to the people who had led it into bankruptcy.
27 posted on 12/17/2008 9:53:00 AM PST by Eagle Forgotten
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To: LiberConservative
Would you buy a car from a bankrupt company?

Sure. If they went Chapter 11, they could greatly reduce their costs and be financially viable. BK is the only real option if they want to survive. I've taken many flights on airlines that were in BK.

They have some very good products. They could dump their weak lines and layoff workers at those plants and return to profitability within a year or so. Without BK, it will never happen.

28 posted on 12/17/2008 9:53:54 AM PST by SeaHawkFan
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To: LiberConservative

“Would you buy a car from a bankrupt company?”

Absolutely yes!!


29 posted on 12/17/2008 9:56:01 AM PST by dalereed
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To: LiberConservative

Why would I buy a car from them now? The bail out is not a done deal yet. We can only hope that enough pubbies and perhaps some dems of conscience will oppose the deal and the companies ultimately will be forced to bankruptcy.

People flew on bankrupt airlines so I don’t see that as any great negative for those who are continuing to buy Detroit’s junk as we speak.


30 posted on 12/17/2008 10:03:38 AM PST by dools007
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To: 5thGenTexan
dRAT’s payback to the union.... period.

This is a new chapter .

Bankruptcy would allow re negotiation of union CBA agreements, as it did with airlines and everyone.
UAW don't want their contracts renegotiated.
It's pay back time, on the taxpayers dime.

31 posted on 12/17/2008 10:04:49 AM PST by IrishMike (Barry Soetoro has demonstrated that he is a shenanigans man !)
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To: jwparkerjr

ding, ding, ding, ding, ding......we have a winner...


32 posted on 12/17/2008 10:12:55 AM PST by joe fonebone (The libtard votes in every election, regardless of the candidate.)
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To: dools007

In a bankruptcy, the impaired creditors run the reorganization which is what Chapter 11 is all about. Usually this group are the unsecured trade creditors. The executives, stockholders, and unions have to accept whatever the reorganization plan says, and these terms are dictated by the creditors. If a deal can’t be struck that meets the needs of the creditors, then there is a liquidation of all assets.

In this process existing warranty holders are a creditor class. The companies would continue to operate and the suppliers would all jump at the chance to supply them because they would get paid in advance and probably at better pricing and terms than before.

The key is DIP financing, which might be difficult, but here’s where the government should twist some bank arms. After all the banks got a lot of money and now would be a good time to lend it. Terms would be stiff but then they should be.

It wouldn’t be hard to construct a plan for each of the car companies, but it would chop a lot of jobs. New companies, at reduced prices with warranties on good terms, would sell their cars. Some lines would be sold. Foreign operations which make money would be ideal divestitures.

Bankruptcy isn’t unthinkable it’s just messy.


33 posted on 12/17/2008 10:25:56 AM PST by JeanLM
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To: LiberConservative

I’ve flown a bankrupt airline and rode a bankrupt train(AMTRAK)...


34 posted on 12/17/2008 10:30:38 AM PST by WOBBLY BOB (ACORN:American Corruption for Obama Right Now)
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To: 5thGenTexan

Couple reasons.

First, the top executives lose complete control over the company. Bankruptcy places you under the power of the bankrupty court, and there is someone placed over your company to oversee operations. They can direct the executives as to what steps need to be taken, incuding firing executives, cutting their pay, removing their decision-making abilities. The executives do not want this to occur.

Second the unions do not want this. It voids their contracts and will cause the pension arrangement to be gotten rid of (a step that will make ‘the big 3’ much more competitive with the other automakers). But of course the union’s power of contract leverage they have now is gone. They don’t want that to occur.

Third, it’s a stigma thing, at least from their perspective. They say ‘who wants to buy a car from a bankrupt company?’ The fact is they will be no different in terms of being able to make the cars they made the day before bankruptcy, the day after bankruptcy. Bankruptcy that they are dealing with is not the kind that liquidates the entire company, and then they cease to exist. This bankruptcy is a RESTRUCTURING bankruptcy. Most people understand they need to restructure in order to become competitive with other automakers. Only the executives and the unions appear to not want to do it.

We would buy cars from a company that appears to be in the process of making itself more competitive and attempting to correct the problems that got them in the mess they are in at the moment. Other industries have had to make changes to face stiffer competition - and you can see that the big 3 had to be forced to make better cars, which they have done, by being denied additional bailouts in the 1980s. They are kidding themselves into believing people would shun them if they declare bankruptcy. They just don’t want to lose whatever power they have now - executives, unions - if what is necessary to fix the problem, bankruptcy, occurs.


35 posted on 12/17/2008 10:36:34 AM PST by Secret Agent Man (I'd like to tell you, but then I'd have to kill you.)
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To: RayChuang88
The reason is simple: if GM or Chrysler go into Chapter 11 bankruptcy it would take down a whole bunch of automobile parts suppliers along with them—the economic ripple effect could bump up the unemployment rate as much as 2-3 percent.

What, you say? Surely their creditors will be made whole in the event of Big Three Chapter 11.

GM alone has $28 billion in accounts payable as of their Q3 statements. If American Axle or Johnson Controls or Delphi, Lear, Guardian, Goodyear, etc., etc., etc. are told to take 10 cents on their payable dollar by some bankruptcy judge, they'll end up in bankruptcy just as quickly.

"Ripple" is an understatement.

36 posted on 12/17/2008 10:37:50 AM PST by Fredgoblu
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To: Fredgoblu

so what then..spread the misery to all of us who didnt make stupid management decisions?

let them fail, let them go bankrupt, let the ripples ripple..the sooner we get to the bottom, the sooner we can start to recover...bailing these idoits out will only makethe pain last longer and make it more severe in the end...THE ROAD TO HELL IS PAVED WITH GOOD INTENTIONS


37 posted on 12/17/2008 10:42:50 AM PST by SerafinQ
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To: SeaHawkFan
Would you buy a car from a bankrupt company?

Sure.

That makes ONE. Now we just need ~7-8 million more of you per year to make it work.

38 posted on 12/17/2008 10:47:28 AM PST by Fredgoblu
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To: 5thGenTexan

2 reasons:

1. why would they file for bankruptcy if there is still hope for a bailout?

2. the politicians will do everything possible so that unions wont have to do major givebacks in bankruptcy.


39 posted on 12/17/2008 10:48:23 AM PST by SerafinQ
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To: 5thGenTexan
Isn't the nationalizing of everything just Unions in disguise.
The left is artful at positioning themselves as the middleman.
Education, Auto, Health care, and so on.

Isn't that the real reason they oppose school vouchers because it threatens their control?
Unions do not survive independent of government.
The big government handouts are coming in January.

Charles Krauthammer made the comment that Auto company say they need 2 billion a month to survive. So, Bush should give them 2 billion and let Obama deal with it.

40 posted on 12/17/2008 10:52:02 AM PST by Leep
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