Bankruptcy Offers Big 3 The Way To Help Themselves

When the rescue package for Detroit automakers sank in the Senate last week, did it mark the imminent collapse of an industry that sustains thousands of families in the United States?

Not at all.

Let's be clear: No one, not even their toughest competitors, wants Chrysler LLC, Ford Motor Co. or General Motors Corp. to fail. The consequences of such an event could be catastrophic for an American economy already staggered by recession.

That fact, however, did not negate the serious flaws of the congressional rescue plan. Although $14 billion is a sizable sum even by Washington standards, it's not nearly enough to solve Detroit's problems. Some industry analysts estimate that as much as $125 billion would be needed to turn around the companies if the bankruptcy route is shunned.

The set of bridge loans, which passed the House but stalled in the Senate, likely would have been a first installment in a series of handouts. General Motors alone has been burning through $2 billion a month in cash.

The plan also would have deepened the federal government's intrusion into the industry, dictating production of certain models and even creating a national car czar to oversee the companies' decision-making.

Is it credible that the federal government could manage the American auto business better than Detroit?

In light of the Senate's decision, the Bush administration appears determined to step in with assistance, possibly tapping a portion of the $700 billion bailout of the financial services industry. Again, that might only delay the inevitable.

Writing in the Financial Times, Nobel Prize-winning economist Joseph Stiglitz argued that the companies must restructure under Chapter 11 bankruptcy provisions if they hope to regain long-term viability. The federal government can and perhaps should help with the restructuring, including guarantees on some pension liabilities. But such moves would be cheaper, and more likely to succeed, than simply handing out loans to companies already sinking under their obligations.

Given the nation's dependence on the auto industry, it's tempting to demand a quick fix, a desperate attempt to help the companies, and more important, their employees, avoid the pain of bankruptcy. It's even more critical, however, to settle on a plan that is likely to work over the long haul.

Congress' proposal wasn't that plan. Given time to reorganize, under the protection of bankruptcy laws, the industry may well find the right answers on its own.

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