What a Detroit Bankruptcy + Bailout Should Look Like

And what the bailout might look like
By Kevin Spak,  Newser Staff
Posted Nov 19, 2008 10:14 AM CST
Barack Obama visits with volunteers at a get-out-the-vote call center at the United Auto Workers local No. 550 union hall in Indianapolis, Ind., Tuesday, Nov. 4, 2008.   (AP Photo/Michael Conroy)
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(Newser) – Barack Obama isn’t in the Oval Office yet, but he’s already passed his first presidential test “with flying colors,” in Steven Pearlstein’s book. With Democrats ready to roll over for the not-so-big three, and Republicans stonewalling, Obama broke the stalemate with just the right bankruptcy-then-bailout. Shareholders, the companies, and unions must be forced to come together to restructure the company. Here’s what that might look like:

  • The companies arrange for prepackaged Chapter 11 bankruptcies—a “necessary legal step” for the radical restructuring needed—under a special bankruptcy court set up by Congress, with strict time limits.
  • The government provides interim financing so the companies can keep operating. Those loans get converted into preferred stock later.
  • The government offers warranties for any new vehicles sold, to allay potential buyers' worries.
  • The GSA makes an advance order for millions of new fuel-efficient government vehicles, injecting liquidity, spurring innovation, and giving the government a nice discount on some cars.
  • Treasury uses some of the remaining $700 billion in bailout funds to buy packages of auto loans, to loosen up auto credit lines.