On November 7th I published the following:
"The easiest way would be to either de-unionize or reach an agreement with the UAW to restructure compensation packages. However, this is unlikely and GM is in such dire need of cash, it may be too late for mere concessions. The best answer for GM (and possibly Ford and Chrysler as well) may be a prepackaged bankruptcy."
The Wall Street Journal is reporting that the experts consulting Congress are recommending pre-packaged bankruptcies for GM and, possibly, Chrysler. The sad fact is that it is very unlikely that the Detroit Three will be able to recover without some protection from its creditors (or at least some debt relief). Whether or not the result is a bankruptcy in the legal sense remains to be seen, but even a government assistance package will probably result in the Detroit Three (especially GM and Chrysler)renegotiating terms with their creditors, suppliers and the UAW.
In fact, the first steps have already been taken. Today,the UAW agreed to delay billions of dollars in employer payments to funds which cover benefits for retirees. The UAW also agreed to eliminate the Jobs Bank. Not having to pay idled workers 95% of their compensation will be a tremendous help. Making deals with creditors will be next.
As part of the plan to appease Congress, automakers have been trying to top each other by announcing aggressive plans to build green cars, mostly hybrids and fully-electric vehicles. Actually going this route, regardless of consumer demand, could put the Detroit Three back in DC begging for money a few years down the road. The automakers need to be as flexible as possible to meet ever-changing consumer demand and tastes. That (and superior quality) has been the secret to success for Detroit's foreign-owned competitors. However, having to bow to government edicts is the price of begging for cash. Let's hope that the Detroit three do not end up like British Leyland.
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