Bankruptcy is magic. Like powders, potions of old, when companies were small and executives bold.

Consider what a bankruptcy does and how it does it. The problem a bankruptcy solves is cash flow. It solves this by government intervention. The government is asked to intervene on behalf of the company to save it from contracts it does not intend to fulfill. The effect this has is on the vendors.

In the case of the automobile industry, the Tier 1 suppliers will be hit hard. In many cases they will have to layoff immediately. Additionally, they will tear down and store, or else scrap molds, jigs and specialty tools that had been used to make the parts that were contracted. They will have to do this because they are not well capitalized. With as little as a 20% drop, they layoff in defense of shutdown. These are the people and tools that make the parts needed to repair under warranty. With their failure, there is no after market maintenance, nor much residual value in the vehicle.

It will be inspiring to see the innovation after this grand failure. Imagine what it will look like. Garages will spring up all across America. Retrofitting 2008 Chevys with 2010 Toyota hoods. Hang onto that headlight and duck tape. That’s what happened in Havana after the oil collapse in the good old Soviet Union. Now it is going to happen in America after the collapse of the good old Detroit Unions.
At last, the grand old republic gets its way. At last Reagan does away with the union.