1. Bankruptcy judge functions go to the executive. A standard feature of crisis governance, executive power rises at the expense of other branches of government—Congress and, here, the judiciary. Why give more power to the executive? A crisis is a political problem; judges lack both political expertise and democratic legitimacy. They don't know what to do, and wouldn't be trusted in any event. In bankruptcy, parties have an interest in creating a firm that has maximum going concern value; relative bargaining power determines how the losses are divided. But the bankruptcy judge has little power to crack the whip, and value can be squandered as parties bluff and bargain. The only case for the executive-managed reorganization is that the executive can draw on carrots and sticks to hurry the parties along, favoring those who are cooperative and penalizing those who are not. This is the positive spin on Todd's complaint that bankruptcy is "politicized." Bankruptcy law is one-size-fits-all and not necessarily appropriate for current conditions. Can an executive branch car-czar with broad powers function more effectively than a bankruptcy judge with limited powers? Depends who they are. If not --
2. Bankruptcy law remains the backdrop (maybe!). Managers, workers, suppliers, dealers know that if they can't reach a deal, they end up in bankruptcy. If they are rational and can overcome bargaining costs, they should simply divide the monetary equivalent of the government's free loan (not the loan itself, but the financial equivalent of being able to stay in business an extra couple months when the market would otherwise shut them down) prior to the hard work of reorganizing the companies.
2 1/2. Bankruptcy remains the backdrop (maybe not!). Alternatively, the players might predict that the Obama administration will maintain the federal pap—whatever interest group dynamics that compel bailout today will compel bailout tomorrow. The car industry will become a long-term Amtrak-like federal vehicle for transferring resources to politically influential, geographically concentrated people—mostly middle class or wealthy.