Bankruptcy for GM, Chrysler Could Cost More Than Loans

If there’s ever been a better situation for the phrase “damned if you do, damned if you don’t” than Chrysler and GM’s current financial situation, you’d be hard-pressed to find it.

With GM requesting an additional $14 billion in government loans (bringing the grand total of requested cash to $30 billion) and Chrysler asking for another $2 billion on top of its previous $7 billion, skepticism certainly has its place.

Both automakers have delivered plans to the government detailing how they will cut costs and restructure in order to return to profitability in a tough car market. Reviews of these plans have been mixed, but this may be a case where more loans and a little, ahem, hope may be the best of the bad options.

Otherwise, it would be Chapter 11 for both companies, and in GM’s case, because of its size, the federal government would have to provide what’s called “debtor-in-possession financing” (presumably no private company would be able to take on that role). GM predicts this could cost as much as $100 billion in financing, while Chrysler foresees $25 billion as its Chapter 11 restructuring cost.

Admittedly, this is coming from the horse’s mouth and not a panel of expert economists, but even if you halve GM’s prediction, that’s still a $50 billion risk that people will buy cars from a company in bankruptcy.

This would come on top of both companies liquidating faster than a Slushy on a summer day, and a quick, vicious loss of manufacturing and dealer jobs in an already bleak job market. Still, in bailout-happy times, how much more taxpayer money is the public willing to see the government bet on Chrysler or GM?

Carmakers Say Bankruptcy More Costly Than Bailout (Financial Times)