In this dangerous game of chicken, Detroit’s carmakers and a divided Congress are hurtling towards one another, warns Lex. GM and Chrysler say they need cash now, not in 46 days when a more sympathetic group will populate Capitol Hill and the White House. In hindsight, the carmakers made a tactical error by not considering a “prepackaged bankruptcy”, reportedly being studied by Barack Obama’s advisers at least two weeks ago. Congress erred too by holding out hopes of a deal as precious time and carmaker’s cash evaporated. US corporations facing bankruptcy have various choices. Beneath Detroit’s bluster that bankruptcy is “not an option”, reports suggest they may now accept a “pre-arranged” reorganisation. But there is scant time left for workers, bondholders, unions, dealers and suppliers to agree concessions. A messier, lengthier and more expensive prearranged deal is more likely without the requirement for universal agreement. Alternatively, an 11th-hour bail-out might still buy time for a negotiated restructuring. But Detroit’s recent hard-headed tactics suggest a bankruptcy judge would get far quicker results.

This entry was posted by Gwen Robinson on Friday, December 5th, 2008 at 5:45 and is filed under Capital markets. Tagged with chrysler, gm. Edit this entry.