The initial reaction to yesterday’s news that the US automakers were in really bad shape because Obama’s boys said so was fair enough, but really it wasn’t anything we didn’t already know was it. If anything, i thought it was a positive sign for the US going forward and longer term that we have a government that is not willing to throw money into a bottomless pitt willy nilly just because the voting public think it is the right thing to do. I think we will see a decent rebound in the equity markets and a reversal of the risk aversion play we saw come back into vogue yesterday.

I wrote a number of thoughts on the US Auto Industry and why i thought Bankruptcy wasn’t really that bad an idea, although the unions are pretty much opposed to the plan because it would remove them from the bargaining table.

Just on the automakers and bankruptcy, a while back I heard someone mention on CNBC that consumers would not buy cars from a manufacturer in chapter 11, which I am guessing is due to the potential lack of after sales support/warranty claims/spare parts availability down the track all which would lead to a lousy resale value. The point was also made that in the current credit climate, the auto makers would not be able to get credit lines to continue running.

I feel that if the government were to following it would alleviate the problems mentioned above:

1) Guarantee any warranty claims for the automakers whilst in chapter 11 – this would ease fears that if the manufacturers went under, the government would still ensure your warranty claims were validated elsewhere. BUT, the chances of the automakers actually going broke is greatly reduced when they go into chapter 11 because they are able to rid themselves of the legacy costs that whilst in place, will prevent them from EVER becoming competitive without a raft of government protection to stand behind. They are also able to renegotiate labour agreements which is something that the unions can not allow to happen. Not sure how much pull the auto workers union or whoever they are have on capitol hill via lobby groups but I am betting they are fighting hell for leather to ensure their own self interests are served.

Ok, so there may be an issue with spare parts availability for cars should a manufacturer go broke and I am in the process of coming up with a solution to this problem too. Any suggestions would be greatly appreciated.

2) Guarantee a minimum resale value for all cars sold whilst in chapter 11 – Perfect, just what you want. You buy a car with a guaranteed resale value, what more could you want? Good looking, reliable and fuel efficient could help…

3) Provide the credit lines to the automakers if they go into chapter 11 – lets face it, all the government is doing in the proposed bailout is lending them money anyway, why not take the chapter 11 option with the funding guaranteed by the government whilst in chapter 11. This would enable the legacy costs to be shed, AND see the automakers get funding to keep them afloat.