Rustbelt

The Right Kind of Bailout

Like Rick and Mael hit on, a bailout of the Big 3 needs to address labor cost and future production (a quality product which, which Chrysler doesn't have). The dealer networks are also costly, and costly to get rid of.

There is little chance, however, that a Democratic government is going to force the automakers into bankruptcy, where the unions will get severly hurt. That is a big piece of their constituency. The bailout will not be contingent upon filing (although it may happen after the company's have filed).

One issue that those against the bailout miss is that the job loss wouldn't be in the thousands, but hundreds of thousands (up to millions). Suppliers have always been squeezed by purchasing departments, and so they have no room to absorb a loss of receivables from the autos (which would be wiped out in Ch11 as unsecured creditors). This would likely drive Tier 2 and Tier 3 suppliers into Ch7.

If people think a bailout is a drag on the economy, think about putting nearly 1MM people on to unemployment, especially with the new unemployment rules that might get passed. That said, without changing cost structure and products, a bailout would only slow the inevitable.