It’ll hurt, but Big Three reorganization is best

The only thing missing from the Big Three’s show in Congress last week was crash dummies splattered with fake blood. Not even when debating war have our representatives been warned of such pending doom.

There are two real options. Congress can build an express lane for U.S. Treasury armored cars bound for Motown, or it can entice GM, Ford and Chrysler to reorganize through bankruptcy.

MY OPINION: THOMAS OLIVER
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A little over three years ago, Delta Air Lines filed for protection to reorganize under Chapter 11. After 19 tough months, Delta emerged as a viable, stronger airline.

Yes, there was pain and loss. Shareholders were pretty much wiped out. Creditors had to accept less than full payment. The pilots union agreed to its pension being shuffled off to the Pension Benefit Guaranty Corp., which pays less than the company had promised. In the middle of it, US Airways tried a takeover.

Delta emerged from bankruptcy with 6,000 fewer employees. But the 47,000 who hung on to their jobs were working for a more financially secure enterprise, whose stock they now owned a portion of.

Ironically, Ed Bastian, president of Delta Air Lines, told the Detroit Free Press editorial board last week that what’s good for airlines isn’t necessarily good for automakers. Bastian said the automakers need a government bailout, not reorganization in bankruptcy. He said the Big Three are as vital to our national interest as the financial industry.

Bastian said Detroit’s problem was liquidity, meaning the Big Three need an infusion of cash.

With all due respect to Bastian, who wasn’t available to comment further, Detroit automakers’ problem isn’t liquidity. It’s their business model. It’s their management. It’s their unions. It’s the 1960s slamming into the 21st century.

Their problems are such that cash can’t fix, according to Michael E. Levine, a former executive with New York Air, Northwest and Continental and now a distinguished research scholar and senior lecturer at NYU.

Levine says that only in bankruptcy can the Big Three get out of contractual agreements with its unions and dealerships, just two constituencies that have hog-tied the automakers.

Bastian is right when he told the Free Press that in today’s climate the Big Three couldn’t find willing lenders to extend them credit through a bankruptcy proceeding. The automakers will need a debtor-in-possession, or DIP, loan, just as Delta did.

For the automakers, Levine recommends the federal government provide the DIP loan. He also says the feds will need to pump some money into the Pension Benefit Guaranty Corp. The assumption is that the PBGC couldn’t handle the Big Three’s pensions without some help.

Will it be easy? Painless? Risk-free? No.

But it’s a more effective way to use our money.