The U.S. government’s proposed rescue package for the Detroit Three automakers is intended to help them avoid the potential devastation of bankruptcy. But some of the benefits of Chapter 11 reorganization might come as a part of the legislation, without all the drawbacks of a bankruptcy protection filing.
The companies will undergo a “restructuring process akin to bankruptcy reorganization,” according to a report by the Wall Street Journal. This includes renegotiating agreements with unions, suppliers, and creditors. The process would involve “fewer rigors,” and would have the government, not a judge, in control.
If the Congress passes the rescue package, the reorganization program would be managed by the ‘car czar’ appointed by the government. At this moment, it appears Kenneth Feinberg, who managed the 9/11 victims’ families’ fund, is likely to get that job.
In addition to orchestrating a possible reorganization of the Detroit Three, the ‘czar’ would also have to be informed of any transaction of $25 million or more and any “material change” in their financial condition. Lastly, the czar would have the ability to force any of the companies into bankruptcy if they fail in their duty to restructure and become viable.
Any effort to force reorganization of the Detroit Three in a Chapter 11-like manner should appease observers on both sides of the bailout debate. On the one hand, the Detroit Three won’t have the stigma of being bankrupt — something that could result in drastically lower sales. On the other hand, creditors, suppliers, and unions won’t be getting a free lunch.
