GM and Chrysler considering bankruptcy as a last resort

Executives at GM and Chrysler have each held private discussions on a possible pre-arranged bankruptcy for their companies. The two automakers are said to be considering the option as a measure of last resort to secure badly needed funding from the US government.

The automakers would much rather get the bailout without having to resort to bankruptcy, fearing a bankruptcy will completely drive away their customers. But lawmakers in the US Congress, and the current Bush administration, have shown themselves very skeptical of a bailout for the US auto industry and have demanded to see detailed restructuring plans from each automaker as a condition for aid.

GM is very quickly running out of cash. CEO Rick Wagoner told the Congress in testimony today that his company needs 4 billion dollars before the end of the month and another 4 billion in January just to stay afloat. Chrysler is also in dire need of cash. Ford is fairing the best of the three. It has asked for a 9 billion US dollar line of credit as its part of the bailout package but says it may not need to tap it, depending on market conditions in 2009.

But Ford CEO Alan Mulally says the industry desperately needs the bailout and that if GM collapses, it may take down his company too.

"The collapse of one or both of our domestic competitors would threaten Ford because we have 80 percent overlap in supplier networks and nearly 25 percent of Ford's top dealers also own GM and Chrysler franchises," Mulally said in Congressional testimony today, as reported by Bloomberg.

But many Republican lawmakers remain opposed to a bailout.

Alabama Senator Richard Shelby said the automakers' plans were not serious and had "few concrete details."

"If you made this presentation to get a bank loan I suspect that any sensible banker would summarily reject your request," Shelby said, as quoted in the Bloomberg story.

In other testimony, chief economist of Economy.com, a Moody's Corp. website, Mark Zandi, said that automakers would need a lot more than the 34 billion on the table right now. "They would ultimately need 75 billion (US) to $125 billion to avoid this fate [of collapse]," Zandi told the Congressional panel.