THE GOVERNMENT NEEDS A CREDIBLE AUTO BANKRUPTCY THREAT

In the post to President Obama, I mentioned that there needs to be a credible threat of a government supported bankruptcy filing by GM and Chrysler. The threat must be supported by a well thought-out bankruptcy filing plan.

I mentioned that there are two reasons for such a plan to be prepared. First, it is prudent contingency planning in case a filing is required because the parties can't agree to the compromises needed for a viable restructuring plan. Second, a bankruptcy filing plan is needed as a real threat to the stakeholders, such as the bondholders, to get them to accept the necessary concessions.

It doesn't help the process for GM and Chrysler to repeatedly say that a bankruptcy filing is a total non-starter. So, why should bondholders agree? They can wait, take a smaller haircut on their claims and let the Government make up the difference with more aid.

Get the bankruptcy plan done so you can implement the out-of-court workout!

Cheers, Mike