That’s the word today, and if we could actually do a Chapter 11 that wouldn’t halt production and cause a domino effect down the line, well, this could be an option that I might be able to get on board with.
First, the deal…
In a prepackaged bankruptcy, an automaker would go into court with financing in hand after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed. The process might take six to 12 months, compared with two to five years if the automakers followed an ordinary Chapter 11 proceeding and worked out agreements under a judge’s supervision, Bane said.
A representative of Obama’s team has already contacted at least one bankruptcy-law firm to say that Daniel Tarullo, a professor at Georgetown University’s law school who heads Obama’s economic policy working group, would call to discuss the workings of a so-called prepack, according to this person.
U.S. lawmakers yesterday delayed until December a vote on whether to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout. GM today said it would idle production at four plants an extra week and return some corporate jets to conserve cash. Automakers could use a judge-supervised bankruptcy to reduce debt and reject expensive contracts.
“It creates the environment to deal with GM’s problems but limits government financial commitment,” said bankruptcy lawyer Mark Bane of Ropes & Gray in New York.
Bankruptcy is just one option being examined. Obama told CBS News’s “60 Minutes” on Nov. 16 that government aid to automakers might come in the form of a “bridge loan,” advanced if the industry could draw up plan to make itself “sustainable.” The president-elect earlier urged Congress to approve as much as $50 billion to save automakers, using the model of Chrysler’s bailout in 1979.
Tarullo referred questions on a prepack to the transition team press office. Team spokeswoman Stephanie Cutter said, “We have not put out anything specific for the auto industry except that something needs to be done immediately.”
So what does this tell us about Obama?
First, he’s positioning himself as the anti-Bush right away. He has a preference, but if that’s not politically feasible, he’s not going to be stubborn.
Second, this is a signal that bi-partisanship won’t be lip service. True, we’ll have to see where this goes, but an encouraging sign nonetheless. And in times like this, there’s little room for ideological demagoguery.
Third, he could be willing to go against labor interests who may not budge on their contracts/pensions if the auto companies got a bridge loan. Chapter 11 would force the unions to make concessions or risk looking like they’re the ones who scuttled the deal.
More as it develops…