May 1, 2009 at 1:47 pm

Daniel Howes

Commentary: Not even Obama knows the way Chapter 11 wind blows

President Barack Obama is flanked by members of his auto task force Thursday at the White House. Despite the president's confidence, even he doesn't know if consumers will give up on Chrysler as it undergoes bankruptcy. (Chip Somodevilla / Getty Images)

Now we'll find out if bankruptcy kills car companies.

Chrysler LLC's forced march Thursday into Chapter 11, despite concessionary deals with unions and most of its bondholders, will answer whether fear, inevitable lawsuits, market uncertainty, stressed suppliers and bargain-hunting consumers keep Detroit's No. 3 automaker from emerging in two months as a leaner, stronger player allied with Fiat SpA.

President Barack Obama doesn't seem worried, witness his careful rationale Thursday for ushering Chrysler into bankruptcy. But the truth is even the president of the United States doesn't know the answer -- however smart his auto task force, however rich the feds' warranty guarantee program and other initiatives designed to bolster consumer confidence.

If American consumers stop buying Chrysler, Dodge and Jeep vehicles, there will be no Chrysler. Doesn't matter if it's because they don't trust a bankrupt company, aren't sure their dealer will survive the shakeout, can't get a deal of the century or because they have other choices.

"If you're considering buying a car," Obama said, "I hope it will be an American car."

Strong words, those 14 from a sitting president. They're also out of character for a politician who boasted during his campaign of giving Detroit the tough-love message it needed to hear, only to find himself in a position to decide how and whether two of its three automakers would live or die.

Thursday was evidence that he'd decided at least one Detroit automaker should live, a reversal from previously labeling all of them as "failed" and their products as "uncompetitive" -- hardly rousing endorsements from Detroit's chief lender and America's CEO-in-chief.

Economic web in danger

Issuing a presidential decision that Chrysler should be kept alive, albeit tempered by bankruptcy and then paired up with Fiat, is one thing. Ensuring that the deal sticks and works is another, particularly because a president who says he doesn't want to be in the car business cannot make it happen.

But can it happen?

There are lots of people desperate to know the answer, starting with Chrysler, the United Auto Workers, General Motors Corp., myriad suppliers and the communities that depend on all of them for jobs, tax revenue, philanthropy. Altogether, they are the web of economic support that made Michigan and the industrial heartland what it is today, good and bad.

For months, bankruptcy-in-Detroit has been two things: a legitimate business remedy, set in federal law, that is mostly prescribed by people who won't live with the consequences. And, second, a fearsome prospect long considered, at least in automaker circles, to be a one-way ticket to liquidation.

As this unfolds, starting with a New York courtroom and rippling to temporarily idled Chrysler plants and suppliers around the country, one of the two camps will be proven right. And the course of GM's slouching toward its own bankruptcy deadline a month from now will be influenced.

Chrysler is Team Obama's test case, the experiment to determine whether there is such a thing as a) a "speedy" bankruptcy in the auto space without b) sparking an uncontrollable collapse of suppliers poised to lose GM and Chrysler revenue at roughly the same time.

A death blow for some suppliers? Almost certainly. The real question is whether the president's auto task force, learning this excruciatingly complex business in real time, planned for the contingency. If they didn't, Michigan and the industrial Midwest are in for another brutal comeuppance.

Michigan's future charted

Bankruptcy can be an unforgiving process for industrial companies, as Delphi Corp.'s three-plus-year bankruptcy attests. Chrysler is ahead of where Delphi was when it filed on Oct. 8, 2005. It has concessionary deals with its unions, a majority of its bondholders and a strategic alliance with Fiat.

All of those are pre-conditions to getting a "new" Chrysler out of bankruptcy quickly and tying it up with Fiat, leaving the unwanted assets (and, presumably, the people linked to them) to languish in bankruptcy for what could be years.

In that, Chrysler's next 60 days offer a window into Michigan's future -- a fresh chance to operate without the legacy burdens of the past or a slow, continuing downward spiral because the weight of history is too heavy to off-load quickly.

The UAW, set to become the majority shareholder of Chrysler, soon will be forced to shoulder the responsibility of ownership. This, the same union that in 2005 spurned the retiree health care deals reached by rivals GM and Ford Motor Co. because it refused to grant concessions to a profitable company.

Months later, Chrysler parent DaimlerChrysler AG moved to dump the Auburn Hills-based unit and cited the UAW action as one of the last straws. It was the start of a cascading chain reaction that delivered Chrysler to Cerberus Capital Management and culminated in a shotgun wedding with Fiat to avoid liquidation -- if the plan works.

"If" being the operative word for a company whose fate will telegraph whether the Detroit industry has much of one.

Daniel Howes' column runs Tuesdays, Thursdays and Fridays. (313) 222-2106"> Catch him Fridays with Paul W. Smith on 760-WJR.

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