What Would It Have Meant to “Let Detroit Go Bankrupt”?

Edward Niedermeyer has an interesting WSJ op-ed on what it would have meant to let GM and Chrysler go through a traditional bankruptcy process, and whether this would have meant giving up on the domestic auto industry (ignoring, for the moment, the existence of other auto manufacturing in the US) and industry employment. Here’s a taste:

if the auto bailout is not simply the choice between government intervention and the collapse of an entire industry, what is the difference between the two candidates’ positions?

When the president forced GM and Chrysler into bankruptcy court, the White House’s auto task force used the process to execute a prearranged reorganization it had masterminded with political allies. By contrast, Mr. Romney called for a true bankruptcy, in which creditors and stakeholders negotiate reorganization together, with the government merely providing the minimum support needed to prevent disorderly liquidation. In retrospect, Mr. Romney’s approach not only would have produced outcomes superior to the president’s, it was actually the braver course of action. . . .

GM and Chrysler could have averted tens of thousands of lost jobs, and the government could have preserved billions of dollars in tax revenue, by undergoing a true bankruptcy reorganization, even if the government had provided full debtor-in-possession financing.

In a true bankruptcy guided by the law rather than by a sympathetic, rule-bending political task force, GM and Chrysler would have more fully faced their competitive challenges, enjoyed more leverage to secure union concessions, and had the chance to divest money-losing operations like GM’s moribund Opel unit. True bankruptcy would have lessened the chance that GM and Chrysler will stumble again, a very real possibility in the brutally competitive auto industry.