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. 





UAW leader says no more concessions

COLUMBUS, Ohio – Even as Detroit’s Big Three teeter on collapse, United Auto Workers President Ron Gettelfinger said Saturday that workers will not make any more concessions and that getting the automakers back on their feet means figuring out a way to turn around the slumping economy.

“The focus has to be on the economy as a whole as opposed to a UAW contract,” Gettelfinger told reporters on a conference call, noting the labor costs now make up 8 percent to 10 percent of the cost of a vehicle.

“We have made dramatic, dramatic changes and the UAW was applauded for that,” he said.

Instead, Gettelfinger blamed the problems the auto industry is suffering from on things beyond its control — the housing slump, the credit crunch that has made financing a vehicle tough and the 1.2 million jobs that have been lost in the past year.

“We’re here not because of what the auto industry has done,” he said. “We’re here because of what has happened to the economy.

THIS GUY HAS NO CLUE – DOES HE! GM Spends $10 Million a month paying UAW workers not to work.


Auto-Bailout Mechanics

Industry insiders say “burn them down and start over.”

By Henry Payne

Detroit, Mich. — General Motors is not competitive.

That is the conclusion, not of conservative D.C. critics or Wall Street investors, but of officers with the Detroit auto-parts suppliers who do business every day with America’s largest car company — and with its Japanese competitors.

It is an open secret in the Motor City that — even leaving aside its high labor costs, surplus of brands, and bloated dealer network — GM’s manufacturing culture is inefficient compared to foreign rivals Toyota and Honda. Conversations with numerous supplier reps confirm an antiquated Detroit culture that does not thoroughly engineer products before contracting production with suppliers. As a result, production runs for Detroit automakers like GM are frequently interrupted to change specifications. Those interruptions add costs — costs that Japanese manufacturers rarely incur. The problem is so prevalent that employees for JCI — major international supplier Johnson Controls, Inc. — often joke that their acronym stands for “Just Change It” because its American clients routinely run up unnecessary costs by altering production contracts.

Can a $25 billion taxpayer bailout help General Motors change its culture? “No,” says one supplier executive. “You have to burn them down and start over.”

But with Washington now in union-beholden Democratic hands, that scenario — bankruptcy — is not going to happen. In the current downturn, many financial experts predict that a GM bankruptcy would be a dicey scenario not just for the industrial heartland, but for the country as a whole — and so argue that Washington faces a Hobson’s choice as it considers a bailout for Detroit automakers. The question is when, not if.

But handing over $25 billion to U.S. automakers may be a short-term national benefit — but it would only draw out Detroit’s slow slide to failure, with no return on the public’s investment. On the other hand, not breaking the Detroit Three’s free-fall into bankruptcy (or some form of government receivership) might be painful for the nation in the short run, but would offer the best route to industry revival over the long haul.

Thirty years ago, the federal government successfully bailed out Chrysler Corp. But today’s landscape looks very different from that of the late 1970s. At that time, the Big Three’s Japanese competitors did not operate a single manufacturing facility in the U.S. Today, Japanese, German, and Korean manufacturers all operate plants here — employing 93,000 American workers from Kentucky to Alabama. In other words, a bailout for a Detroit company is no longer essential for maintaining America’s auto-manufacturing base.

This time the bailout’s focus is on GM, which is projected to exhaust its cash reserves by year’s end. [Ford’s cash — thanks to a shrewd mortgaging of company assets two years ago — will last into 2009. Chrysler is already assumed to be lost — as its owner, Wall Street equity firm Cerberus, is desperate to abandon the auto business.] GM argues that it has taken steps to become more competitive and that it only needs federal money to bridge the current, freak financial crisis so that its cost reforms can go into effect as scheduled in 2010. The company is correct up to a point.

Critics such as columnists Robert Samuelson and Charles Krauthammer are not entirely correct in saying that GM hourly labor costs are $25-per-hour higher ($73 v. $48) than their Japanese competitors. In fact, 2007’s historic, contentious labor pact provides for a “two-tier” wage scale that reduces employee costs to $55 per hour — within striking distance of non-union Japanese plants.

Striking distance isn’t enough, though, and industry analysts agree that GM must do more. But in its appeal to taxpayers for $25 billion, GM has arrogantly refused to provide a revised business plan in return for the money. Instead, it has played the fear card, arguing that withholding the funds will lead to a national depression. But GM’s excessive overhead costs demand explanation.

Writing for the Wall Street Journal, Michael Levine of NYU’s School of Law points out that GM and its chief competitor, Toyota, have nearly identical U.S. market share (20 percent for GM, 19 percent for Toyota). Yet GM has eight brands and Toyota only three. GM also had 7,000 dealers (due to state franchising laws) versus only 1,500 for Toyota. These problems cry out for restructuring, yet GM insists on postponing hard decisions hoping instead for an infusion of taxpayer booty.

Worse, federal cash will come with strings attached, thanks to a liberal Congress that wants to turn Detroit into ground zero in its battle against so-called global warming. The result would be Nancy Pelosiimposed targets forcing automakers to make more high-mpg cars whether there is market demand for them or not. Absent structural reforms, mandating money-losing small cars would only hasten Detroit’s demise. Even left-wing New York Times reporter Keith Bradsher — author of the SUV-bashing book, High and Mighty — has documented how congressional fuel mandates have put Detroit at a competitive disadvantage ever since their inception in 1975.

Short of “burning them down,” then, what is the solution? A Democratic Washington has many in Detroit resigned to a bailout that will preserve the viability of their 401ks if not the American auto industry.

But if bankruptcy is out of the question, its government-ordained cousin — public receivership — has precedent. A receivership modeled after the airline stabilization board that helped rescue U.S. airlines in the aftermath of 9/11 could have the effect of both restructuring GM as well as assuring its survival after reorganization. Analysts from NYU’s Levine to former Wall Street Journal business editor Paul Ingrassia have endorsed this approach.

It would be painful, but it would also be the transformational moment that U.S. automakers have promised for far too long.

Democrats Choose “Green Agenda” Over UAW

A Democratic Congress, unwilling or unable to approve a $25 billion bailout for Detroit’s Big Three, appears ready to punt the automakers’ fate to a lame-duck Republican president.

Not our responsibility, countered the White House.

“If Congress leaves for a two-month vacation without having addressed this important issue … then the Congress will bear responsibility for anything that happens in the next couple of months during their long vacation,” said Dana Perino, the White House press secretary.

She said there was “no appetite” in the administration for using the financial industry bailout money to help auto companies.

GOP Sens. Kit Bond of Missouri and George V. Voinovich of Ohio were at work on that measure Wednesday, toiling to placate skeptical Democrats by including a guarantee that the fuel-efficiency loan fund would ultimately be replenished.

“It is the only proposal now being considered that has a chance of actually becoming law,” said Republican leader Mitch McConnell of Kentucky.

But there was little sign that Democratic leaders would go along. They are vehemently opposed to letting the car companies tap that money — set aside to help switch to vehicles that burn less gasoline — for short-term cash-flow needs.

The “Green Agenda” cash may not actually have been targeted for the auto companies anyway – it maybe directed to “alternative energy research firms” that Democratic Speaker of the House Pelosi and Democratic Represenative Waxman favor. Pelosi and Waxman are trying to unseat Democratic Representative John Dingell, (Dem, Detroit) from his Chairmanship Seat. Dingell has served longer than any other member of Congress.,0,7068890.story?track=rss

Many lawmakers in both parties, however, are now openly discussing whether bankruptcy might be a better option for auto firms they regard as lumbering industrial dinosaurs that have done too little to adjust their products and work forces for the 21st century.  

One point that several members of Congress hit on was the way the CEOs got to Washington.

Rep. Gary Ackerman, Democrat from New York, noted the irony of the CEOs flying on private jets and “getting off with tin cups in their hands.” “Couldn’t you have downgraded to first class or something, or jet-pooled … to get here?” he asked. The executives on Wednesday’s panel — GM CEO Rick Wagoner, Ford CEO Alan Mulally and Chrysler CEO Robert Nardelli — said they flew on private jets.;_ylt=AsF35t7iWFTSuN7tgAY_dq.yBhIF

Rep. Jeb Hensarling, a Texas Republican, also expressed skepticism about helping the industry, “What I have not heard is a plan that convinces me that with the $25 billion, that you will achieve sustainability,” said Hensarling.

The Generals Motors CEO claimed his compoany was losing $5 Billion a month.;_ylt=AsF35t7iWFTSuN7tgAY_dq.yBhIF

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