Chrysler and GM hold onto hope of avoiding bankruptcy

By John Paul (jpaul@wsbt.com)

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Chrysler and GM hold onto hope of avoiding bankruptcy

A lot of GMC SUV's on sale at a dealership in Dormont, Pa., Tuesday, Nov. 11, 2008. Shares of General Motors Corp. plunged to their lowest price since the days of World War II as investors continued to dump their shares amid panic that the automaker could be in danger of collapse and that its shares could soon be worth nothing. (AP Photo/Gene J. Puskar)

By WSBT News1

Story Created: Dec 15, 2008 at 5:55 PM EST

Story Updated: Dec 18, 2008 at 11:07 PM EST

DETROIT — GM and Chrysler fear they'll go bankrupt without a combined 15 billion dollars in aid from the U.S. government. They will file either Chapter 7 or Chapter 11, and each has a very different outcome.

Outside the Chrysler dealer there's little foot traffic, but the showrooms are ready and waiting.

Much like the officials from GM and Chrysler, holding out for a $15 billion bailout.

"I think the speed in which all of this happened was a surprise," said Mike Robinson, economics professor at St. Mary's College. "I'm not surprised they are in financial difficulty, because they've been doing very badly for a long time."

The financial troubles are not new. The accelerating amount of debt accrued isn't either.

"They were burning through cash," said Robinson. "GM burned through two billion dollars in cash in a month."

With dwindling cash reserves, and the U.S. Senate pumping the brakes on a bailout deal, GM and Chrysler indicated they may not make it to the end of the month.

A Tennessee Senator said the companies may not make it to the end of the week, putting the wheels of bankruptcy in motion.

"There's two different ways the auto industry could go," said Jackie Homann, a Chapter 7 bankruptcy trustee.

With Chapter 7, "Their assets, all of the things they owned, would be liquidated."

Those assets, including company owned dealerships, would be controlled by the bank.

"Those folks will get all that back," Homann said. "Using it to pay down the loans the auto company owes them."

There's also Chapter 11 — a likely scenario.

"They can figure out a way to pay back their creditors and keep operating and running," Homann said. "And [the company] can pay back their creditors over time."

"There are companies still around that have gone through reorganizations," said Robinson. "They are viable companies right now."

The reorganization could take years, causing a ripple effect, starting with customers —

"I think people would think ‘This company is going to be liquidated, and I'll have a car and I won't be able to get parts and the warranty won't be good,’" said Robinson.

— and including suppliers.

"It's going to have a huge affect all the way down the line," said Homann.

Both Robinson and Homann believe there's the possibility pensions could be affected.

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