Financial fallout: Bankruptcy would crush auto industry

By Keith Walker

Published: November 29, 2008

Michael Martin of Dudley Martin Chevrolet said the American auto industry would be "crushed" if the Big Three automakers don't get a loan from the feds and were allowed to go bankrupt.

Martin, whose grandfather started the Manassas Chevrolet dealership more than 65 years ago, bristles when people talk about "bailing out" Detroit.

"The constant reference to it as a bailout is not being fair to the automakers," Martin said. "They're looking for a lower interest loan from the federal government and I think that they're going to present a good plan here next week."

Martin said a filing for bankruptcy by any of the Big Three automakers would trickle down to local economies.

People wouldn't buy a bankrupt company's cars for fear that warranties wouldn't be honored and parts wouldn't be available, said Martin, who employs roughly 100 people at the Chevrolet dealership.

"We're the first one everybody calls for charitable donations. We sponsor Little Leagues. We're the first ones to step in with the hospitals on any capital campaign. We try and be very interactive with our organization," he said.

Martin estimated that there are 6,000 auto dealers across the nation. All of those dealerships do business with other businesses, he said.

During a recent trip to Washington, D.C., American auto executives failed to convince Congress that they needed the $25 billion bridge loan.

The executives from Ford Motor Co., General Motors Corp. and Chrysler LLC will go back to Capitol Hill next week with more concrete plans on how they would use the money and how they would pay it back.

Martin said a loan to the car companies today would be similar to the loan Chrysler received from the feds in 1979. That loan, too, was called a bailout in the popular parlance of the time.

"The reality is that it was a $1.5 billion loan that was paid back with interest and was very profitable for the federal government," said Martin, who is the national auto dealer representative from Virginia for the National Auto Dealer Association.

The consequences of allowing American automakers, with their international interests, to fail would spread far and wide, Martin said.

"I think people look at the Big Three as North American companies—which they are. But they're really multinational companies with production plants throughout the world," he said.

The Associated Press reported that Senate Banking Committee Chairman Christopher Dodd, D-Conn, is attracted to a Chapter 11 bankruptcy, where companies negotiate plans with creditors to speed up the process.

A Chapter 11 bankruptcy lets a company stay alive while it pays off creditors over time, retains control of its assets, downsizes and renegotiates contracts.

According to the AP, the idea is gaining traction on Capitol Hill.

But the credit freeze has changed the bankruptcy terrain since United Airlines filed for Chapter 11 in 2002 and successfully emerged from bankruptcy in 2006.

Borrowed money is hard to come by now, so some lawmakers acknowledge that the automakers would need some help from the feds even as they filed for Chapter 11, the AP reported.

American Airlines eliminated its pension plans and cut jobs, pay and benefits before emerging from bankruptcy.

Keith Walker can be reached at 703-369-6751.