For Now, Big Three Off Bankruptcy Brink

A study says a single bankruptcy would likely lead to the failure of at least two automakers.
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At least for the time being, the automakers will get their wish: no bankruptcies.


the industry is slated to get a $15 billion bailout

, financed by loans from an existing program that had been intended to fund a transition to fuel-efficient vehicles. An overseer chosen by President George W. Bush would monitor the industry's restructuring.

Progress on the bailout cheered the stock market Monday, with automakers leading.


(F) - Get Report

rose 66% to close at $3.38, while

General Motors

(GM) - Get Report

rose nearly 21% to $4.93.

Detroit's automakers have repeatedly acknowledged their need to restructure and submitted detailed plans to Congress last week. However, due to fourth-quarter collapses in auto sales, both GM and Chrysler say need infusions of billions of dollars to avoid liquidity crises.

Theoretically, an overseer would have the ability to force concessions by stakeholders, including the United Auto Workers, bondholders, suppliers, shareholders and others.

"The companies needed a bridge loan, and this $15 billion bridge loan gives them a chance to move forward," says Kriss Andrews, auto practice lead at business advisory firm BBK. "They also get oversight. Let's hope the oversight is wise oversight."

Earlier Monday, BBK and Anderson Economic Group released a study indicating that an automaker's bankruptcy would cost taxpayers up to four times the amount of the bridge loans. The study says a single bankruptcy would likely lead to the failure of at least two automakers, as suppliers failed, resulting in the loss of 1.8 million one-year jobs and $70 billion in federal and state tax revenue over two years. Consumers will not buy cars from a manufacturer in bankruptcy, the auto industry maintains.

Andrews says the crisis gives the companies the opportunity to restructure outside of bankruptcy. "I hope that enough inertia has been taken off, so they can get the constituents to line up and do what they have to do," he says.

It is entirely possible to reorganize outside of bankruptcy and to achieve similar outcomes, says Credit Sights analyst Glenn Reynolds.

"Liability management and balance sheet realignments get done all the time these days outside of bankruptcy," Reynolds says. Pressure is created, he says, by "the need to avoid the bankruptcy laws, contractual provisions that can get triggered, and the optics of the 'B' word and how that can drive the consumer across the street to the other guy."

Even in a restructuring outside bankruptcy, Reynolds foresees that shareholders would be wiped out, and bondholders would take a haircut. The trick will be whether the UAW would ever take equity," he said. "They should (because) then they can make it back in upside. Another trick will be to see how well bondholders get organized so the liability managers do not sneak up on them with a deal they cannot live with."