Here's a prediction for what is likely to happen to the U.S. auto industry and why it will happen...

The car companies and probably most of the auto parts suppliers will wind up under the protection of the bankruptcy courts. But they will remain there, with the taxpayers funding their negative cash flows as debtor-in-possession lender of last resort, until economic conditions result in increased sales and earnings enough for them to come out of bankruptcy. The creditors committees in those bankruptcies will never successfully negotiate a Plan of Reorganization in order for the bankruptcy judge to finally adjudicate the bankruptcy. The participant on those committees who will be most at fault will be the UAW, who will not agree to any substantial give-backs to their wages, benefits or work rules. As the result, none of the other creditors will be motivated to take a haircut on what is owed them either. Of course, it is not the role of the bankruptcy referee to dictate the plan to the creditors--that's why he's officially called a "referee". It's up to the creditors to negotiate a mutually acceptable plan. If the UAW is involved, they won't.

The UAW has said publicly that they will not give back the wages, benefits and work rules that they negotiated so hard for over almost 75 years. And they haven't. The threat of bankruptcy to the auto companies and suppliers is nothing new. Everyone knew it was probably inevitable for several years now. Everyone also knows what has to happen in order for the car companies to be able to survive. But has the UAW given up anything? Not that I know of. They've "agreed to discuss" or "are in the process of negotiating" lots of such things. But they never seem to finally agree to anything, even when threatened with deadlines. The government has laid down two deadlines just in the last three months--the UAW has ignored them both.

Notwithstanding all the tough talk by the President yesterday, it's pretty clear that the government is not going to let the car companies or the suppliers fail. The last Congress didn't, this one won't, nor will any future Congress vote to abandon an entire industry, putting 2-3 million people out of work almost instantaneously. That's so clear that on CNBC this morning the financial experts were opining just that and discussing ways that investments could be made in GM which would result in a cheap price for their stock when this is all over. Do you think the UAW, with their decades of expertise in negotiation, hasn't reached the same conclusion? They feel very little threat to the actual demise of the car companies or suppliers and as the result are unlikely to seriously discuss substantive changes to their wages, benefits or work rules. Would you?

If you want an example of what is likely to happen to GM, Chrysler and a bunch of suppliers, consider the history of Delphi Corporation. Delphi is the former Delco Remy Parts Division of GM. It was spun off in a public offering of stock in 1999. At the time there was some criticism that the company was undercapitalized by GM, but the stock market was strong enough that the investment bankers were able to peddle the IPO shares quite easily. Delphi's bankruptcy filing in 2005 was almost predictable. And since then the creditors committee has been discussing and negotiating a Plan of Reorganization. In four years, not much progress has been made. A key player on the committee is the UAW, of course. And as long as they refuse to agree to give-backs, the other creditors aren't too motivated to take a haircut either. Now that the government has announced that it has carved out several billion dollars to "save the suppliers", how motivated do your think the UAW or any of the other Delphi creditors will be to seriously consider negotiating a plan that will actually result in any of them taking a haircut?

Taxpayers already own more than the market value of all three car companies. We're getting ready to buy the suppliers, as well. And when they all declare bankruptcy, the taxpayers will become the D-I-P lender of last resort, funding the negative cash flows for as long as it takes. Everyone can get ready to hold a seat--albeit a small one--on the board of directors of an entire industry.

All this leads to an interesting question..if you had the decisive vote in Congress, up or down, to crater the U.S. car industry or not, put 2-3 million people out of work or not, experience the ripple effect in the economy that such a decision would produce or not, produce an economic downturn that may take us a decade or more to recover from or not, make a decision that might actually cost the taxpayers more in unemployment payments, pension guarantees, Medicare, Medicaid, increased school and municipal taxes, etc. or not--how would you vote?