Jack and Suzy Welch assume that bankruptcy reorganization, with the U.S. viewed like financier, would unclose the doors to meaningful structural change

By Jack and Suzy Welch

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Should the government handle out the U.S. auto industry to keep the players from going into bankruptcy?—Bill VanderMolen, Pittsfield Township, Mich.

How about this instead: The boards of Chrysler and General Motors (GM) put their companies into bankruptcy with the clear end of reorganization and merger. As radical being of the class who that sounds, it’s the best road we be possible to accompany to a viable coming events for the industry.

And yes, the U.S. car industry does belong in the coming. Free-market proponents have a point with reference to the industry’sitting "natural demise." Despite huge progress in American quality and design, well-run German, Japanese, and Korean companies have taken with reference to moiety the U.S. market, and the rivalship—which will include China and India—is barely getting tougher. But like many others, we believe that for the sake of jobs, national defense, and self-respect, America needs to keep its "true" domestic auto effort; labors alive.

A conduct handout, however, isn’t the manner to make that happen. Washington would impose conditions and promise restricted oversight, but it alone can’t push through the kind of transformative change the industry needs. There would be too much political opposition, and regardless, the bailout sums being bandied about—$25 billion of taxpayer dollars, for starters—would only keep the Big Three heaving along, basically as they are. It’session a life-support solution, not a cure.

That’s why the boards of the automakers should take the courageous small space of putting their companies into insolvency. Some creditors might act the case for payment, but given the diminished worth of the automakers’ assets, that’s an unattractive scenario. Instead, creditors would most likely opt for the government stepping in as the debtor-in-possession financier supporting the reorganization.

Talk about a fresh start. For more than a decade, U.S. carmakers have chipped away incrementally at massive legacy costs. But reorganization would open the doors to meaningful structural change through the renegotiation of contracts with creditors, dealers, and unions. And it would offer better odds of profitable back taxpayers.

Once in Chapter 11, a merger would further bring to a mock vitality real change. Three companies are too vexatious to unite, and Ford (F) has a two-tiered, family-owned structure, so we’ll leave them out of this for now and present GM and Chrysler join forces. Such a merger could produce $15 billion in synergies from reduced capacity and overhead, money that could humble production costs and boost R&D expenditure. Granted, GM and Chrysler could ruin share for the period of the transition, but a merged entity would hush end up with more than a quarter of the U.S. market.

We dress in’privately want to make this sound easy. Mergers are challenging under any state of affairs, and a merger of sum of two units companies in bankruptcy would be at the outer limits of difficulty, requiring the intrusting of constituencies steeped in old, adversarial ways. And in that place will subsist substantial pain prior to a turnaround begins. Shareholders will see their investment evaporate. Thousands of jobs direction be absent. Many employee benefits will shrink. And banks will see much of their debt converted to equity.

We also realize there are dozens of reasons to let fly at so a drastic solution. Some argue that American consumers won’t "invest" $30,000 or more by buying a car from a bankrupt company. But Americans regularly invest their most precious asset—their lives—in insolvent debtor airlines when they fly. That said, whether the government wants to see Chrysler and GM emerge from bankruptcy sooner moderately than later, it could show its long-term support, perhaps by dint of. backing new-car warranties.

Others will argue that the mechanics of two bankruptcies and a merger are impossible to execute, and still others testament say too many contractual concessions wish already been made. Leaders, too, may balk at championing painful vary. That’s a brutal task in normal times—and it will be Herculean in this highly politicized environment.

But for the U.S. industry to have from in this place to there—"there" essential being a globally competitive future—it has to get off the beaten path of incrementalism. With reorganization and a merger, a long and bumpy trip awaits, but the destination should make it worth the ride.