“Bankrupt” doesn’t mean “out of business”

December 17th, 2008 at 10:47am Annette LaCross

Published Dec. 14:

We’ve been reading quite a bit about the Big Three lately. Some of it, you’ve read here — despite my vow, made about 10 columns ago, that I’d write nothing more about the embattled automakers until some sort of inevitable and ill-advised bailout plan is finalized.

Sadly, I vastly underestimated the volume of hot air to be generated by Detroit and Washington. Not to mention me.

The debate, of course, continued last week, when a last-ditch effort by House Democrats and the Bush administration couldn’t get past Senate Republicans.

Afterward, most headlines read something like this: “No deal for Big Three bailout.”

But something has gotten lost in the veritable forest of headlines that has sprouted around the U.S. auto industry in recent months:

There is no Big Three. Not, at least, how we in the U.S. traditionally recognize it.

For most of the 20th century, General Motors Corp., Ford Motor Co. and Chrysler Corp., in that order, earned the moniker. They dominated the global market even through the 1990s, when the trio controlled two-thirds of global market share.

But by 2007, only one remained in that vaunted group. After commanding the top spot for nearly a century, General Motors fell to Toyota Motor Corp.

Volkswagen AG muscled Ford into the fourth spot, while Hyundai-Kia, Honda, Nissan and PSA/Peugeot pulled ahead of the then-recently-renamed Chrysler LLC, which ranked ninth.

And that doesn’t count the crippling sales drop of 2008. After this year, I suspect the scorched earth of the global auto industry will look substantially different.

Which brings us to this month, and the dramatic pleas from two of the former Big Three for $14 billion in emergency cash from Congress to stave off bankruptcy. Until March, that is. When, I expect, they’ll be back for more money to stay in business for another three months or so.

In the meantime, because Congress couldn’t agree on the time of day, let alone a Detroit bailout, the Bush administration has as much as promised to pony up the money from the Troubled Asset Relief Program, the $700 billion plan Congress passed this fall to prop up Wall Street’s rickety banks.

Here’s what I still don’t understand: Why would a bankrupt Chrysler or GM be so catastrophic? In too many cases I’ve seen “bankrupt” being used almost interchangeably with “collapse” or “closed.” And lots of reports are featuring a “3 million jobs lost” figure when they speculate darkly about the automakers’ future without a bailout.

That unemployment number comes from a study by the Center for Automotive Research in Ann Arbor, Mich. — whose chief, David Cole, firmly supports the bailout idea — which suggested that 3 million people would be out of work if all three of Detroit’s automakers closed for good.

Which isn’t going to happen, with or without a fistful of government money. And Congress knows it.

That’s why, as a provision in its bailout package, it authorized — indeed, demanded — that a newly named “car czar” force GM and Chrysler into bankruptcy by the end of next year if the companies didn’t demonstrate some kind of commitment to solvency.

Examine, if you will, Exhibit A: Northwest Airlines. United Airlines. Delta Air Lines.

Or Exhibit B: the U.S. steel industry.

All of them were forced to file for Chapter 11 protection, without so much as a peep from Congress. And there is still a U.S. steel industry. There are still U.S. airlines. They’re smaller, to be sure. But they’re here. And hopefully smarter and leaner than they were before bankruptcy.

Or how about Exhibit C: Delphi Corp., GM’s former parts-making arm, which filed for Chapter 11 protection in 2005. Not a peep from Congress then, either.

Three years later, Delphi is still in bankruptcy and still producing parts for the auto industry.

It’s not ideal. It’s not pretty. But a nationalized auto industry is uglier. And all the gnashing of teeth about the jobs lost under a bankrupt automaker just doesn’t wash.

Thousands of jobs have already been lost. Thousands more are in the works. And what about the number of jobs the federal government will demand once it’s in charge of the industry?

The automakers got themselves into this mess. This is the consequence of their actions. They should have to face up to it.

Not surprisingly, the automakers think it’s a terrible idea.

Nobody will buy a car from a bankrupt automaker, they argue, because consumers will have no confidence in the company.

No offense, but I think that’s what got their as-yet-not-bankrupt companies into this mess in the first place.

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