I’m not reassured by the noises coming from the Bush Administration right now, especially in the wake of Chrysler’s decision to halt operations for at least a month. Some people are trying to downplay this, because the automakers always shut down for a while around the holidays. But a full month, in this environment, is much much longer than the usual couple of weeks. And that’s without that killer, “at least.”
I think we are witnessing the end of Chrysler.
Bloomberg reported that Mr. Bush made a bunch of frankly garbled comments to the American Enterprise Institute. The short version is that he is considering an “orderly” bankruptcy as one option for the automakers.
That sounds very nice and firm, but I have to ask what it means. I’m no bankruptcy expert, but I just googled it and it seems that the term “disorderly bankruptcy” is a fairly new one, which mostly didn’t exist before the government started trying to convince us that they would save us from it. (It seems to me I’ve heard this song before…)
I got only 15,000 hits for that term, of which 90% were in the last year, and 65% were in the last month. Those are small and new numbers (compare regular “bankruptcy” at 58 million hits). If anyone knows how to trick Google into only finding the older stuff, please let us know; I would love to look at the other 10% without sorting through 1000 pages of new stuff.
Anyhow, I’m just a peasant, but here’s what I know: Bankruptcy is specifically an orderly way of dealing with an inability to pay debts. “Orderly bankruptcy” is redundant, and a “disorderly bankruptcy” would hopefully never exist unless the institutions governing bankruptcy administration were dysfunctional (which might be the case here).
So what would a “disorderly bankruptcy” look like? Well, it might first stem from the bankrupt entitity being confused by its business conditions and unable to plan, perhaps because it is waiting to hear whether the government is going to save it. Disorder might possibly show up in decisions to suspend operations for a significant and uncertain length of time. Further disorder would result from employees not knowing when (or if) they’ll be back to work, which would drive them to look for work and lead to uncertainty about what sort of workforce will be available. It might also result in the collapse of suppliers, who are already owed a lot of money by a struggling debtor and now uncertain when(if) the next order will come from that debtor. It might also result in the loss of a lot of retail outlets, which would either close or take their business elsewhere, rather than wait for the bankrupt company to come back into production.
That would be pretty disorderly: not knowing when(if) the plants will reopen, nor who will be working there when(if) it does, nor with what materials, nor through what sales infrastructure the product would be sold if it can be somehow made under these thoroughly chaotic conditions.
The article also included the following gem from White House Press Secretary Dana Perino: “The president is not going to allow a disorderly collapse of the companies. That is not an option.”
I’m sorry to break the news, Ms. Perino: That’s not an option, that is already a reality.
It would have been more orderly if the administration had just come out and said “sorry, suckers.” At least then the industry wouldn’t be twisting in the wind like this, and people could get on with their lives.
Even though there is some hope that Chrysler will re-launch and then not immediately crash, I think that any sensible planning should be focused on a post-Chrysler world. We should also note the severe cutbacks by GM (particularly the suspension of construction for the plant that is supposed make the engines for Chevy Volts).
Earlier this week, I threw out a hypothetical plan for auto part suppliers to get ready to form a co-op to buy an auto plant and start up a new company. Now it looks a lot less hypothetical, and a lot of people have the month off to plan.