Bush Weighs ’Orderly’ Bankruptcy for Automakers By DAVID STOUT and MICHELINE MAYNARD Published: December 18, 2008

WASHINGTON - The White House said on Thursday that an "orderly" bankruptcy was one option being considered to try to rescue General Motors and Chrysler, which are seeking billions of dollars to avoid a shutdown.

President Bush’s spokeswoman, Dana Perino, confirmed growing speculation within legal circles that the president and Treasury Secretary Henry M. Paulson Jr. were considering the step as part of an overall rescue package for the automobile industry.

The action would be unusual, and would require concessions by the United Automobile Workers union, suppliers, investment banks, the federal pension board, bondholders and other stakeholders in the two auto companies.

Ford Motor, which does not face an urgent need for capital, is not likely to be part of any rescue package.

Under one possibility that has been discussed, the government would give G.M. and Chrysler enough financing to operate for several months. Then a government-selected overseer would bring together company executives and other representatives to map out steps that would be taken once the two companies file for Chapter 11 protection.

"It’s not going to be easy, it’s not going to be pleasant, or palatable, but it’s the only solution that makes the least bit of sense," said Hugh M. Ray, head of the bankruptcy practice at the Houston law firm Andrews & Kurth, who has participated in many major bankruptcy cases.

Major banks would provide debtor-in-possession financing for the companies to operate while under bankruptcy, with federal funds as security.

"I will tell you this: the president is not going to allow a disorderly collapse of the companies," Ms. Perino said Thursday at a news briefing. "Disorderly collapse would be something very chaotic that is a shock to a system," Ms. Perino said. "There’s an orderly way to do bankruptcies that provides for more of a soft landing. I think that’s what we would be talking about. That would be one of the options."

She quickly added that no final decision had been made. She said she could not be definite about the timing of a White House announcement, but that administration officials wrestling with the crisis were "nearing conclusion" of their deliberations.

"Any scenario that comes forward after this decision-making process, all the stakeholders are going to have to make tough decisions," Ms. Perino said.

"I would just say that we want a robust auto industry in America, and we think that they can be competitive and viable," Ms. Perino said. "But they’re going to have to make tough decisions to get there."

President Bush said Thursday during an appearance that he was "worried about a disorderly bankruptcy" and the psychological implications it would have for an economy already staggering under the weight of a severe recession.

"Under ordinary circumstances," Mr. Bush said, "failed entities - failing entities should be allowed to fail."

"I have concluded these are not ordinary circumstances, for a lot of reasons," he said. "Our financial system is interwoven domestically, internationally. And we got to the point where if a major institution were to fail, there is great likelihood that there would be a ripple effect throughout the world, and the average person would be really hurt."

He said he also felt an obligation not to saddle President-elect Barack Obama with "a major catastrophe" on his first day.

But, Mr. Bush, answering questions at the American Enterprise Institute, said he was concerned about "putting good money after bad."

Ms. Perino said Chrysler’s announcement Wednesday that it would shut down production for at least a month was one factor driving the White House deliberations. The car companies typically close for a couple of weeks over the year-end holidays, but Chrysler’s decision to close for a month or more because of plunging sales was seen as ominous.

Negotiations involving the White House, Treasury Department, General Motors and Chrysler on an emergency loan package of more than $14 billion have been going on for days. Legislation on a rescue plan for Detroit stalled last week in the Senate, essentially leaving it up to the administration to decide what to do.

Before the president’s comments, Senator Debbie Stabenow, a Democrat of Michigan, expressed frustration with the delay in granting a bailout to the car companies. "This is extremely serious. People are playing with fire the longer we wait on this," Ms. Stabenow said in an interview Wednesday night on MSNBC. "The president has indicated that he would step up and provide help. I’m taking him at his word. But every day counts right now."