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Bankrupt US car makers could crush recovery

THE Obama administration faces difficult choices on the fate of the United State auto industry, weighing the cost of pouring billions more into struggling companies against possible bankruptcies that could undermine plans to jump-start the US economy.

General Motors Corp and Chrysler LLC are racing against a deadline today to submit plans to the government to show how they can repay billions in government loans and return to viability despite a sharp decline in vehicle sales. The terms of the federal loans set "targets" for concessions, largely from debt holders and the United Auto Workers union, but talks have made little progress.

GM's negotiations with the UAW broke off on Friday night, still focusing on exchanging the company's cash payments into a union-run retiree health care trust for GM stock.

GM and Chrysler do not need to have everything nailed down for today's progress reports but the companies are expected to detail concessions along with plant closures, job cuts and possible elimination of brands.

After today there will be several weeks of intense negotiations ahead of a March 31 deadline for the final versions of the plans.

GM and Chrysler are living off a combined US$13.4 billion in government loans. If they do not receive concessions by March 31 they face the prospect of having the loans pulled, followed by bankruptcy proceedings.

Any bankruptcy would be particularly painful with some economists predicting that the country could lose 2 million to 3 million jobs this year and the unemployment rate, now 7.6 percent, could pass 9 percent by the spring of 2010.

White House senior adviser David Axelrod did not respond directly when asked if the US economy could withstand a GM bankruptcy. Nor did he directly address a question about whether the Obama administration would let GM go into bankruptcy.

"I'm not going to prejudge anything. I think that there is going to have to be a restructuring of those companies. I'm not going to get into the mode of how that happens. We'll wait and see what they have to say," he told Fox News Sunday.

Executives at the two car makers have said bankruptcy is not an option because consumers would not buy cars from a company that might go out of business.

Harley Shaiken, a University of California-Berkeley labor economist, does not think the Obama administration would risk bankruptcies given its efforts to create jobs: "We're clearly on the edge of that abyss right now. Going over it would do irreparable damage not simply to the auto industry but to the manufacturing base in this country."


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