Wednesday, December 17, 2008

Best Auto Bailout Solution

Donald Trump, in an interview today, gave one of the best answers I've heard recently on how to solve the question of whether to bail out the Big Three:


"The government should offer $35 billion in DIP financing to Detroit."

DIP is shorthand for debtor-in-possession financing.  For the auto industry it'd be very hard to get from the private sector but the US government can certainly do it.  Essentially, like the airlines-many of which have continued to fly while in Chapter 11, it would work like a pre-packaged bankruptcy where GM or Chrysler would be able to operate largely shorn of onerous, decades old obligations to the UAW and states' laws regarding distributorships.    Consumers can be confident that the car companies will continue to exist and make good vehicles and cover their warranties.

Of course the howl from the unions and the left in the Democratic party would be tremendous because it would make bankruptcy a sensible option.

Donald Trump knows about chapter 11 operations as he's taken a number of his companies through it.

In my pessimistic view I think Detroit gets a lifeline.  I would not be surprised at all if they got it from President Bush who may have deep personal sympathy for the autoworkers.   The view here of course is that for Detroit to emerge as viable, going concerns a drastic change in the current structure is required.   At least Bush should leave this rather tough decision for the Messiah aka Obama.   I would be pleasantly flabbergasted if Obama let Detroit go.

Ain't gonna happen - someone will bail them out.   And we will come to regret it.

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