Wildcard in any auto bankruptcy: the consumer

By David Bailey

DETROIT (Reuters) - The debate over the U.S. government's bid to reshape the American auto industry through bankruptcy comes down to this: the spreadsheets of a handful of former investment bankers pitted against the street sense of thousands of U.S. auto dealers fighting to survive.

If the veteran car dealers are right, the Obama administration risks driving Chrysler LLC and General Motors Corp into a costly dead-end by focusing more on financials than consumer psychology.

"No one understands the depths and the magnitude that a bankruptcy could take us through," said Chuck Eddy, whose family has had a Chrysler dealership for 40 years in Youngstown, Ohio. "You don't want to stick that toe in the water. It's the unknown that could create a total catastrophe."

The autos task force led by former investment bankers Steve Rattner and Ron Bloom has driven GM and Chrysler to slash costs and cut debt -- through bankruptcy if needed.

But with less than a week until a government-imposed deadline for Chrysler, critics are increasingly concerned U.S. officials have lost sight of a critical piece of the equation: the motivation of the American car buyer.

"I think they hear talk of bankruptcy and that at least gives them pause if not frightens them," Jack Nerad, an analyst at Kelley Blue Book, said of car buyers.

"There is some percentage of people still likely to consider Chrysler and General Motors brands even in bankruptcy, but I think when push comes to shove that figure will drop," said Nerad, whose KBB is a leading source for the resale value of used cars and trucks.

GM is expected as soon as this week to detail deeper cuts and a much quicker resolution to its turnaround plan, which includes slashing brands, dealers and thousands of jobs.

Chrysler, about 80 percent controlled by Cerberus Capital Management, has been given to the end of April to reach a definitive alliance with Italy's Fiat SpA, labor cost cuts and a debt reduction plan.

U.S. automaker Ford Motor Co, which has not sought emergency government loans, may be benefiting from consumer interest because of the dire conditions of its U.S. rivals.

CREATIVE DESTRUCTION OR JUST DOOM?

Dealerships, already facing tighter requirements from lenders, could face a run on their credit that would force many to shut down in a bankruptcy filing.

While U.S. carmakers want to slash the number of dealerships to match their much smaller operations, the potential destruction from a GM or Chrysler bankruptcy could be anything but creative or controlled, skeptics say.

"This is a much bigger, a much more complex, much more intricate situation than it first appears," AutoPacific senior consultant Jim Hossack said.

Therein lies the difficulty for the administration, lawmakers, the automakers and economists. There is no modern U.S. auto bankruptcy precedent to follow and few overall reorganizations with the cost or complexity.