Filing for Chapter 11 protection under bankruptcy law is the normal way a company stays in business when facing an unmanageable financial situation. It keeps creditors at bay while the company reorganizes under court supervision and settles its debts. In recent years it has served as a refuge for major airlines (Delta and United) which, you may notice, continued to fly while in Chapter 11 and, post-bankruptcy, fly today.
Bankruptcy protection also frees companies from union contracts. Could this be why it seems to have been taken off the table as an option, at least among Democrats? We can only surmise, but it’s clear that a bankruptcy process would be rough going for the United Auto Workers.
The New York Post echoes this sentiment:
Chapter 11 bankruptcy would allow the Big Three to operate while their ruinous labor contracts are renegotiated to reflect 21st-century economic reality.
Michael Barone adds that the automaker’s bailout plan does nothing to make their firms viable – “No one in the private sector is willing to pony up a dime for this business plan.”
Finally, Dan Mitchell notes that such a bailout rewards a business model based on lobbying, while also rewarding mismanagement. Of course, offering such perverse incentives will only end badly:
The money devoted to influence peddling in Washington would be better spent on improving quality and finding ways to reduce a bloated cost structure, but both management and UAW have decided that fleecing taxpayers is a better option.
A taxpayer bailout would be a terrible mistake. It would subsidize the shoddy management practices of the corporate bureaucrats at General Motors, Ford and Chrysler, and it would reward the intransigent union bosses who have made the synonymous with inflexible and anti-competitive work rules.