Warren Brown's Car Culture

By Warren Brown
Sunday, April 26, 2009

Hanging on can obstruct progress. It's sometimes better to let go and get going in another direction. For General Motors and Chrysler, this is one of those times.

Both companies should declare bankruptcy -- reorganization under Chapter 11 for GM and liquidation under Chapter 7 for Chrysler. For GM, that would mean closing a chapter in its storied history. For Chrysler, it would be more akin to closing the book.

Officials at both companies know this.

The White House's automotive task force knows it.

Bondholders, those institutions holding debt for the two automobile manufacturers, know it. That is why banks that received billions of dollars in taxpayer bailouts have been reluctant to cut a deal reducing debt for GM and Chrysler. They think they have a better chance of collecting more cents on the dollar in bankruptcy court.

The coy leaders of Italian automobile manufacturer Fiat know it, too. That is why they've become increasingly quarrelsome in White House-mandated talks aimed at "saving" Chrysler through what amounts to a Fiat-Chrysler merger.

Fiat isn't interested in helping Chrysler. Fiat wants to help Fiat, which, in terms of acquiring Chrysler's assets, it might have a better chance of doing on the open market, buying the parts it wants of a liquidated Chrysler while shunning the rest.

Certainly, dealers and suppliers for GM and Chrysler suspect something is up. At the dealerships, the proof is in inventory. In the Washington area, as is the case nationwide, Chrysler and GM dealers are carrying substantially lower volumes of new cars and trucks now than they did last year -- or even at the beginning of 2009.

That partly is because of the mess the recession has made of automobile sales for foreign and domestic models. But in private conversations with area dealers, another reason becomes apparent. Those dealers say they are trying to lower their exposure to possible manufacturer bankruptcies by reducing inventory -- wholesale purchases usually paid for with dealer loans from banks and finance companies.

Worried dealers think they could wind up upside-down on those wholesale-purchase loans in the event of bankruptcies by GM and Chrysler -- owing much more on inventory than the inventory is worth in a market filled with bargain hunters determined to pick up products at the lowest possible prices.

Sifting through all of this angst, GM and Chrysler appear to be suffering all of the downsides of bankruptcy without ever declaring it. That being the case, both companies might as well declare under case-appropriate chapters of federal bankruptcy law and get it over and done with.

Fears that such bankruptcy declarations would further cripple a stumbling national economy have been rendered meaningless by recent events. Tens of thousands of automotive jobs already have been lost in a U.S. market that once generated sales of more than 16 million new vehicles annually but that now is struggling to yield 10 million.

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