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?
I too suppose there is a bankruptcy clause. Probably put in place back in the Chrysler debacle.
Because then they can't screw the taxpayer.
Chapter 11 negates all contracts even UAW contracts. Democrats don’t want to bite the hands that feed them so many voters, so they push for a “chapter 11 type situation” that isn’t chapter 11. They do it with a straight face and so far no republicans have pressed them on this. I think this is because we, the American people, have become the sucker at the table.
Would you buy a car from a bankrupt company?
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.
I don't understand why the Big 3 auto makers seem to refuse to even consider Chapter 11.They fear that nobody will buy their products if they are in Chapter 11 bankruptcy. Mostly, people would be afraid they couldn't get warranty repairs and parts later, especially if the company ultimately fails.
Of course, nobody is buying their products now, so it's tough to say how many sales they will actually lose to the stigma of bankruptcy.
Also, there would be some ramifications up their supply chains. But I think most of their suppliers should weather a chapter 11 reorganization. It would strain them, though, and could put some of the suppliers into chapter 11, or even completely out of business.
When a publically traded company goes bankrupt so does the common stock. When they come out of bankruptcy, they change symbols and the old stockholders are screwed.
Management has billions in stocks and options. That buys a lot of campaign donations.
The people at the top of the heap for both management and labor consider themselves royalty. They have become accustomed to the good life and aren’t about to agree to something that would take control of their world from them and give it to a third party. If they had not become so spoiled by their years and years of being treated like royalty they could have made the decisions over the years that would have avoided the problems they have now.
I know it’s tempting to blame the entire mess they are in on the unions, but to my way of thinking the fault lies entirely with those who gave in to labor’s demands in order to assure their continued cushy jobs at the top. At any point they could have said they could no longer agree to contracts that were adding thousands of dollars to the cost every car produced. But that would have meant having to real work, like dealing with a series of strikes. It was much easier to go along to get along and let future management worry about it.
Bankruptcy would mean losing all control of their future to a referee that might turn out to be willing to subject both sides to all sorts of restrictions and rules. It’s much easier to get the taxpayers to ante up the funds and put off the day of reckoning for a while longer.
It’s the nature of unions to take what they can get. It’s management that chose to give in to avoid problems.
I would also think that under bankruptcy, management bonuses would be canceled, management salaries may be reset by the bankruptcy judge, etc. Management as as much to fear from bankruptcy as the unions do.
Because they know if they can hang on for another month, Obama will give them (and the unions) everything they want.
Chapter 11 involves court protection from confiscation of assets by creditors. The part suppliers who are owed money could demand payment and drain all cash, which prevents paying the payroll and all employees then go home.
The key requirement in Chap 11 filing is Debtor in Possession financing. Someone has to lend a company money to continue operations during restructuring and negotiation with creditors and . . . paying lawyers. In this environment there is NO ONE who will provide DIP money. So a Chap 11 filing would be liquidation. Even if the bankruptcy judge declared the UAW contracts null and void and that all bond holders are wiped out, there would be no cash to pay anyone to continue operations.
A possible scenario here is that TARP or TARP funded banks provide DIP financing. This would permit operations under Chapter 11, but then all of the non DIP related reasons mentioned earlier in the thread come into play.
More. That is why they have agreed to work for $1/yr. Their salaries under bankruptcy are chump change compared to their revitalized stock.
Then they’d be responsible to an all-powerful judge or trustee who can gut their excessive spending and force a renegotiation on the union contracts.
IOW, they’d actually have to change to become profitable. This way they can just stick it to the taxpayers. Why go through all that painful and less personally profitable change if you don’t have to?
Ray, there’s got to be a selfish motive as to why the automakers won’t go Chapter-11. These execs don’t give a rat’s patootie about the greater economy — and they are already sc3wing their suppliers through non-payment. Some suppliers will go bankrupt even if the Big 3 somehow pull this out just based on what has happened thus far.
It wouldn’t be the first time that the Dems have messed with an important constituancy immediately after a major election. But in this case you are probably right. Organized Labor has enough juice to create a 3rd party if they chose to throw a wrench into the works. So it’s not very likely that the Dems would cut their own throats.
Well Uncle Sugar might guarantee loans. But then the government would be seen by the UAW as a threat to the union and Democrats would never go for that so...
Great explanation, Owen. It basically explains the little Kibuki theater we are seeing right now.
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