Irony of ironies. Will the bailout of US automakers lead to them going out of business? Will it send GM and Chryler bankrupt?
That's the question now being raised. As Forbes points out, the companies have a week to submit new restructuring plans to the US government under terms of their $17.4 billion taxpayer loan. That also means negotiating with bondholders and the United Auto Workers union to reduce the massive debt, and those talks are going nowhere. As Forbes says, the welfare package for the auto companies might be the problem. "By extending loans to the carmakers, the government removed the primary incentive for bondholders and the union to bargain: fear of a bankruptcy filing."
And according to this analyst report, the chances of a bankruptcy are high. If they fail to produce a restructuring plan by March 31, the automakers will be required to pay back the government loans. And they could be forced into bankruptcy as a condition for additional bailout aid. "Under such a deal, the government would finance the bankruptcy with a "debtor in possession" or DIP loan, which would elevate its lender status. According to industry experts, chances of a forced bankruptcy is quite high as it seems the only way out to assure preferred repayment of taxpayer's money."
And according to this report, auto industry analyst Erich Merkle says there are two options for GM: more bailout money or bankruptcy.
Whichever way you look at it, the options aren't great.
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