Bailout, Bankruptcy or Both for Big Three?

While federal bailouts and bankruptcies are often viewed as separate alternatives for the automakers, it seems entirely possible that both could occur.

The board of General Motors(GM) has reportedly examined the possibility of bankruptcy if the company doesn't receive its share of a $25 billion rescue package the industry has sought, although the biggest of Detroit's carmakers continues to maintain that Chapter 11 is not "a viable solution."

Both GM and Chrysler have indicated they could run out of money if something isn't done. "The companies' liquidity might become insufficient to operate their auto manufacturing businesses, perhaps during the first half of 2009 or earlier," wrote Standard & Poor's analyst Robert Schulz, in a report issued Monday.

Even with federal help, "we would likely view such assistance as buying more time for the automakers rather than solving the fundamental business risks, especially deteriorating demand globally," Schulz wrote. "In addition, we can envision a scenario in which federal government assistance could be predicated on financial restructuring of some existing debt, which we would consider a distressed exchange, tantamount to a default."

At this point, the bailout seems likely if the automakers can make a better impression on Congress. At a House Financial Services Committee hearing last week, Rep. Maxine Waters, D-Calif., told the Big Three CEOs, who were in Washington to discuss aid: "In the final analysis people are going to roll, and you're going to get what you're asking for."

President-elect Barack Obama said this week that Congress did the right thing by telling the chief executives they need to come up with a plan and "come back before you're getting any taxpayer money." A new presentation, with more specifics, is in the works and set for early December.