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Court protection could have dire consequences for millions of workers
By Justin Hyde
Detroit Free Press
Published on Wednesday, Nov 12, 2008
WASHINGTON: Over more than a century, auto industry workers have survived two world wars, recessions and oil spikes, but a bankruptcy would finally knock their destiny out of their hands.
Despite vows by top officials to avoid it, fear is high that dwindling cash reserves could push one or more of Detroit's three automakers into court protection within the next several months. Even a hypothetical glimpse of the consequences shows why executives insist it is not an option.
The fallout would likely range from thousands of jobs cut at factories and offices to the slashing of jobs at suppliers and dealers, the shredding of benefits for workers and losses for investors and pension plans.
While a bankruptcy by General Motors, Ford or Chrysler wouldn't approach the size of the $613 billion reorganization that Lehman Bros. filed earlier this year, it would easily become one of the most complex legal fights ever, with thousands of parties scratching for whatever's left. And with one in 10 U.S. jobs supported by the industry, millions of workers could be affected.
''The impact would be devastating,'' said Kevin Tynan of Argus Research. ''The impact of the collapse of GM would be bigger than Lehman Bros.''
The bankruptcy case of Delphi Corp. offers a scaled-down look at what automakers could face. After three years in court, the parts supplier has shed 27,000 U.S. hourly employees — more than two-thirds of its blue-collar workers — and cut U.S. salaried employees by nearly half to 7,700. Despite the steep cuts and renegotiated union contracts, the company has yet to find enough financing to pay its reduced debts and emerge from bankruptcy.
GM Chairman and Chief Executive Rick Wagoner repeatedly ruled out a court reorganization as an option last Friday in commenting on the company's latest quarterly report, even though GM could run short of cash before the end of the year. He said the automaker was convinced ''the consequences of bankruptcy were dire.''
Ford Chief Executive Alan Mulally attempted to reassure Wall Street that the company had enough cash, despite burning through $7.7 billion in three months. Privately held
Chrysler didn't release results, but is suffering from the same economic conditions that bedevil GM and Ford, as sales have tanked amid the credit squeeze and market losses.
Shelly Lombard, an analyst with Gimme Credit, said it was now a high probability that GM would face bankruptcy.
''I think they file'' if they don't get government assistance, she said. ''This recession is going to be longer and deeper than we ever thought. I don't think they can withstand that.''
The laws governing business bankruptcy were designed to give companies relief from overwhelming debts to reorganize, cut costs and eventually start over. Many of the changes Detroit automakers have said they need to survive, such as fewer dealers, lower health-care costs and more competitive supplier contracts, would be within reach under bankruptcy.
But while airlines, retailers, suppliers and other businesses can usually protect their revenues in a bankruptcy, automakers have long maintained that customers simply wouldn't spend $25,000 on a vehicle from a bankrupt automaker. Earlier this year, CNW Marketing/Research found that 80 percent of new vehicle shoppers would avoid a carmaker in bankruptcy; the figures were higher if the automaker was one from Detroit.
''When you're selling a big-ticket item, you don't want them cutting corners, especially when you're dealing with a market as competitive as the auto industry,'' said Jack Williams, a Georgia State University law professor.
There are dissenters from that view. Automotive Lease Guide, a company that tracks the values of used vehicles, said a bankruptcy would reduce the values of a company's models by about 4 percentage points, since much of Detroit's troubles are already priced into those values. John Blair, chief executive of ALG, said an automaker attempting to reorganize rather than shut down could make a public appeal.
''I think a lot of that would have to do with how the public relations are handled,'' Blair said. ''A better, smaller company could pull it off. People generally want Detroit to be around; a lot of people like to buy American and could see it as a way to do so.''
WASHINGTON: Over more than a century, auto industry workers have survived two world wars, recessions and oil spikes, but a bankruptcy would finally knock their destiny out of their hands.
Get the full article here.
Comments
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Posted 06:13 AM, 11/12/2008
Maybe Mr. Blair. Maybe.
Tallmadge, OH
Posted 07:08 AM, 11/12/2008
I just hope the Congress doesn't trade the auto bailout dollars for approval of the Columbian Free Trade Agreement that Bush wants to blackmail them about. This can wait for Obama Jaunary 20th.
Barberton, OH
Posted 07:55 AM, 11/12/2008
I wouldn't give them the money simply because they are 'a' business just like 'a' small business is, and our government doesn't 'bail out' any of our small businesses, so why are we offering it to big business?
More importantly what are teaching these big businesses by continuing to bail them out every time they cry wolf?
The government is not a bank and needs to stop playing banker, this isn't a game of monopoly!
Picking and chosing who we bail out is not only discriminating which 'favors' a certain class of business owners, but promotes discimination across the board and, if banks aren't permitted to discriminate therefore our government shouldn't be permitted to either.
The government needs to stop bailing out any business, when most know it's not about the economy at all but actually about mis-management of operating funds. The small business owners don't get this perk, why should the big ones?
Not giving them the money will force them to mangage their operations more efficiently and, force them to go to a 'real' bank for a loan just like a small business owner would have to do.
Posted 12:17 PM, 11/12/2008
It's a shame that these greedy Union workers ran Delphi into the ground. They only agreed to renegotiate after they bankrupted the company. Those who held these automakers hostage with strikes are now paying the price.
m, m
Posted 01:12 PM, 11/12/2008
It's always the 'lil guy' on bottom to blame. How about those CEO's and top management do something novel....... take a pay CUT! CEO's of today thing they can demand whatever pay, force the bottom paid workers to take cuts, and then ask Uncle Sam to bail them out. After all this is accomplished, go on a retreat. It is time for the workers on bottom to revolt, along with shareholders, and force these guys to take a pay that is in line with a reasonable salary. And, maybe we too just need to face facts. There is alot of competition in the auto industry. More auto makers than in days of old, sending more cars to the US. But you can sell only so many cars each year. Maybe, American automakers don't need to build as many cars! wow. what a thought there!
