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Bankruptcy. It's a scary word but one that all of the so-called "smart guys" seem all too willing to use as the quick-draw, fix-all solution to heal the crippled U.S. auto industry. As always, these are the same people who stand at the ready with an easy answer for everything from how to cure teenage zits to cornering the market in cocoa futures. In most instances, I don't think the implications and potential consequences of bankruptcy as the panacea for the auto-makers have been given enough thought by those making the most noise.
When we woke up Monday morning, we learned quickly enough that when it comes to our domestic auto industry, there are no easy answers. Intellectually, I realize that bankruptcy—or some hybrid form of bankruptcy—may be the last resort to save companies like GM and Chrysler, but I am not ready emotionally to give up on these companies, their workers or the thousands of little businesses that will collapse in the event of a bankruptcy. I also accept that bankruptcy is sometimes a necessary and unfortunate tool, but it should not be used as a weapon to punish bad management, as some voices around the country are now advocating.
You can examine the car industry's problems for yourself. Take a drive through the cities, towns, and villages of rural Minnesota. In most of them, the local new car dealer is about the only "big business" left on Main Street. For instance, take a drive to Virginia, Minnesota, on the Iron Range. At 1301 S. 17th Street, you'll find Iron Trail Motors. The sign outside the dealership says they are authorized to sell you a new Jeep, Toyota, Dodge, Chrysler, or Chevrolet.
Look closely at this or any auto dealers' showrooms. Not a whole lot of spanking bright new cars to look at, are there? That's because with vehicle sales at an all time low throughout the country and banks only willing to lend money to people who can prove they don't need it and the automakers looking into the financial abyss, dealers are strapped when it comes to "floorplan." "Floorplan" is the industry term for how dealers finance the cars they have in inventory but haven't sold yet.
Auto dealers, as a general rule, don't own those cars in the showroom or on their lots, they "floorplan" them. A bank or captive financial arm (think GMAC, for example) of one of the big auto manufacturers "holds the paper" on those cars and trucks until the dealer sells them.
When, and if, that happens, the dealer takes the money the buyer paid for the car and pays off the bank or factory finance arm, including the "floorplan" interest. The stark reality of the life of the auto dealer is that they invest their money in a building and equipment, hire trained technicians and sales people, and for that they get the keys and the factory authorization to sell a particular brand or brands of cars and trucks. They put up their money, create jobs in the local economy, and try to sell enough cars to stay in business from day-to-day.
If the big guys in Detroit are forced into bankruptcy, those financing arms of each manufacturer are going to fold like a 20-year-old Robert Hall suit. What do the local auto dealers do then to finance their "floorplan?" Do you think they can get all the financing they need at the local bank? The chances of that happening, especially in small towns, are about the same as Madonna getting to play the Virgin Mary in next year's Christmas Pageant at St. Swithen's Church.
Some of those cheering for bankruptcy say it will allow the companies to get rid of their "lifetime employment" contracts with the few UAW people still working the line. (Remember, the auto industries have already lost 400,000 jobs.) Yet, the chants for bankruptcy don't say what we'll do to feed the millions of kids from Virginia to Vicksburg and from St. Cloud to Shreveport, whose Dads and Moms will lose their industry-related jobs. If you think we've got homes in foreclosure now, imagine how those numbers will skyrocket if this industry and its suppliers have to go through bankruptcy.
An auto industry bankruptcy isn't going to be limited to Detroit or isolated to Iron Trail Motors and the Mesabi Range. A bankruptcy for the auto industry—unless given special exemptions by the government—will be a tragedy of heartbreaking proportions for thousands of little people who work, live, love, and grow their families in the presumed safety and solitude of thousands of towns like Virginia, Minnesota, that exist all over this country.