I'm undecided on the auto bailout. At first I was opposed to it, because if there's anyone who has ever needed Chapter 11 bankruptcy, it's the Big Three. Their business model and their capital structure are both clearly unsustainable; they badly need to restructure, and that's what Chapter 11 is for. I'm still leaning heavily toward rejecting the auto bailout, but this, from Wilbur Ross (a.k.a. the King of Bankuptcy), has given me pause:
Investor Wilbur Ross, who made billions turning around distressed steel and textile companies, said a Chapter 11 filing by General Motors Corp. or another U.S. automaker wouldn't work and might devastate the economy. Going to court to reorganize would be "a very inhospitable environment for any of these guys," Ross, 70, said in an interview yesterday. "It would be a total mess." ... "If we were in a different overall economic environment, one of them going down wouldn't necessarily kill" the industry, he said. A weakened economy and frozen debt markets make an automaker bankruptcy impossible, with a Chapter 11 filing for reorganization resulting in liquidation instead, Ross said.It isn't entirely clear why Ross thinks Chapter 11 would be impossible, but the lack of available financing seems to be his main concern. If that's the problem, then instead of lending the Big Three $25 billion to keep them out of Chapter 11, the government should let them file for Chapter 11 and then agree to provide DIP financing.