Senator: bankruptcy is needed

Though he has opposed loose use of bankruptcy laws in the past, the lead Republican critic of auto industry bridge loans, Senator Richard Shelby, whose turf includes several “transplant” car factories, has strongly urged the Big Three automakers to declare bankruptcy to “free themselves” of past obligations.

Senator Shelby has noted that bankruptcy would allow automakers to break commitments to suppliers, banks, and present and former employees. He advocated that the automakers use bankruptcy to weasel out of paying pensions to elderly retirees, as well as suppliers.

Numerous editorials in industry publications and statements by industry insiders, including a representative of Honda, have pointed out that bankruptcy would likely spread throughout the supplier base, which has already been downsizing and enduring competition from China and changes in buying patterns and margins. This would disrupt domestic auto production in both Big Three and import (Honda, Toyota, Mitsubishi, Hyundai) plants. Failure to repay bank loans would presumably result in more bank failures, resulting in greater Federal aid to banks.

Senator Shelby claimed that a “prepackaged” bankruptcy deal would avoid scaring potential customers, who would face the prospect of buying a car with no real warranty or future parts supply.