CAR CZAR vs BANKRUPTCY REORGANIZATION – Which is best for “Detroit 3”

“If We Don’t Say Bankrupt” no one will notice the Detroit 3 are broke

I guess it isn’t so anymore ….. maybe the public has grown accustomed to being lied to …. or have we, the public,  just lost all of our common sense …….

The latest lie …… “Oh we can’t ask the “Detroit 3″ to file for Bankruptcy Reorganization, like any other Company or person ….” 

The reason – “No one would buy a car from a “bankrupt company”.

When I was young, a lie of this magnitude would have been called a “whopper” ……

At this point in time their are very few people who do not know the “Detroit 3″ are broke – they are in fact “Bankrupt” in every business sense – that is why they are seeking a “handout” of taxpayer money …….. The “Detroit 3″ owe 10’s of Billions of Dollars they can’t pay …. that is why they want a handout ……

Anyone who is unaware of the fact that the “Detroit 3″ are broke … will probably not notice if the “Detroit 3″ actually file for an official “bankruptcy”. As for the public’s willingness to buy cars from a “bankrupt car company”, I just don’t buy the argument – A funiture store near when I live has been holding “Going out of Business” sales  for 12 years now – the furniture store will pay your sales tax and you won’t pay interest on your purchase for 5 years …… I guess the store may be “going out of business” they are just doing it very slowly.

The American public understands “Bankruptcy Reorganization”. ”Bankruptcy Reorganization” does not mean “going out of business”.

Lets touch on some facts, BANKRUPTCY means that a company does not have the “means” or “money” to meet its financial obligations. If the Detroit 3 could meet their financial obligations (as Ford Motor Co might be able to do) there would be no “pressing argument” to support a “handout” of taxpayer moneys, there would be no need to give the “Detroit 3″ any money at all.

Pretending this is not the case should not “fool” anyone. Reporters, Politicians and the “Detroit 3″ are hoping it will fool the American taxpayor.  

There are 2 Types of Bankruptcy.  The first is Chapter 11 – which proivides a company the opportunity to “reorganize” its operations and continue on in business. The Second, Chapter 7, involves a liquidation or “sell off” of Company assests and the end of the business. 

Chapter 11 provides a Company a “fresh start”.  


When a troubled business is unable to service its debt or pay its creditors, the company or its creditors can file with a federal bankruptcy court for protection under either chapter 7 or chapter 11. In chapter 7, the business ceases operations and a trustee sells all of its assets and distributes the proceeds to its creditors. This is done in accordance with statutory defined priorities.

A chapter 11 filing, on the other hand, is usually an attempt to stay in business while a bankruptcy court supervises the “reorganization” of the company’s contractual and debt obligations. The court can grant complete or partial relief from most of the company’s debts and its contracts, so that the company can make a fresh start. Often, if the company’s debts exceed its assets, then at the completion of bankruptcy the company’s owners (stockholders) all end up with nothing; all their rights and interests are terminated and the company’s creditors end up with ownership of the newly reorganized company.


In enacting chapter 11 of the Bankruptcy code, Congress concluded that it is often the case that the value of a business is greater if sold or reorganized as a going concern than the value of the sum of its parts if the business’s assets were to be sold off individually. It follows that it may be more economically efficient to allow a troubled company to continue running, cancel some of its debts, and give ownership of the newly reorganized company to the creditors whose debts were canceled. Alternatively, the business can be sold as a going concern with the net proceeds of the sale distributed to creditors ratably in accordance with statutory priorities. In this way, jobs may be saved, the engine of profitability which is the business is maintained rather than being dismantled, and, as a proponent of a chapter 11 plan is required to demonstrate as a precursor to plan confirmation, the business’s creditors end up with more money than they would in a chapter 7 liquidation.


All creditors are entitled to be heard by the court which is responsible for determining whether the plan of reorganization complies with the purposes of the bankruptcy law and provides for fair and equitable treatment of all parties in interest.

Some contracts, known as executory contracts, may be rejected if canceling them would be financially favorable to the company and its creditors. Such contracts include labor union contracts, supply or operating contracts (with both vendors and customers) and real estate leases. The standard feature of executory contracts is that each party to the contract has duties remaining under the contract. In the event of a rejection, the remaining parties to the contract become unsecured creditors of the debtor.

Chapter 11 is reorganization, as opposed to liquidation. Debtors may “emerge” from a chapter 11 bankruptcy within a few months or within several years, depending on the size and complexity of the bankruptcy. Debtors in Chapter 11 have the exclusive right to propose a plan of reorganization for a period of time. After that time has elapsed, creditors may also propose plans. Plans must satisfy a number of criteria in order to be “confirmed” by the bankruptcy court. Among other things, creditors must vote to approve the plan of reorganization. If a plan cannot be confirmed the court may either convert the case to a liquidation under Chapter 7 or, if in the best interests of the creditors and the estate, the case may be dismissed resulting in a return to the status quo before bankruptcy. If the case is dismissed, creditors will look to nonbankruptcy law in order to satisfy their claims. 


Some critics have claimed that Chapter 11 bankruptcy is excessively lenient in giving a needless “escape hatch” to the incompetent management of a failing company, damaging the efficiency of the economy as a whole and allowing poor managers to continue managing. It is unusual for the management of a company in Chapter 11 to be fired, as it is usually assumed that the present management team knows far more about the company and its customers than would a new set of management. [Bankruptcy laws do not prohibit the firing of Management] These critics note that in Europe, bankruptcy law is far less lenient for failing companies.

Whether you call it BANKRUPTCY or not, the “Detroit 3″ are broke and are, in fact, BANKRUPT. 

A “Bailout” or “Handout” doesn’t guarantee the “Detroit 3″ will stay in business, it will simply delay the day of reckoning. THE KEY TO THE SURVIVAL OF THE “DETROIT 3″ IS THEIR SUCCESSFUL REORGANIZATION

Bankruptcy Reoraginzation doesn’t guarantee the survival of the “Detroit 3″ either – but “Bankruptcy Reoragnization” doesn’t gamble  Billions in taxpayor dollars either. Bankruptcy would provide the “Detroit 3″ with a “fresh start”, a “Bailout” just throws money at an “old problem”.

A “Car Czar” is not the answer – A “Czar” will just add layers of beauracracy over the true problems  

Definition: bu·reauc·ra·cy, n. pl. bu·reauc·ra·cies,   1. a). Administration of a government chiefly through bureaus or departments staffed with nonelected officials., 2. a). Management or administration marked by hierarchical authority among numerous offices and by fixed procedures: b). The administrative structure of a large or complex organization:3). An administrative system in which the need or inclination to follow rigid or complex procedures impedes effective action.

 The answer to how the ”Detroit 3″ should address their problems  is simple, straightforward, tried and tested ….. seeking other alternatives is just political posturing while individuals pursue “secret agendas” behind the scenes.

I guess that is what we call politics today –

The Politicians and Press who say otherwise are telling you another “whopper”.


a) Troubled Assets are not purchased

b) There is no transparency – the Government won’t even dilvulge what was purchased

c) An “Executive Oversite Committee” was to be appointed – Not a single appointment has been made todate. 





One Response

  1. Yes, bankruptcy reorganization is much, much better than “bailout” money.

    FROM McAuley’s World: Looks like the Car Czar has been scrapped again – “Obama scraps ‘car czar’ idea, will opt for panel to oversee industry” –

    Why doesn’t the press point out this “Panel” is usurping the power of the Bankruptcy Courts and the rights of Creditors unconstitutionally.

    And to think the UAW held strikes that shut down dozens of these very same car plants less than 12 months ago. Do you see any mention of what impact those strikes had on slowing the economy.

    QUESTION TO UAW RANK AND FILE: Why haven’t you changed Leadership? Look what your leadership has done for you over the last 10 years! How did you make out after last years strikes?


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