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USA Automotive industry: what Paulson didn't mean

Editorial Staff

What US Treasury Secretary Paulson did not mean when he spoke of "an orderly bankruptcy" for the US auto industry was closing it down. He means a variety of insolvency procedures designed to keep the businesses going.

Paulson has his eye on the US aviation industry which has almost totally reinvented itself - despite restrictive employee pressures, union pressure, pensions schemes and high oil prices - indeed, almost exactly what's facing the US automotive industry.

So he is suggesting mass administration that will allow the companies to unwind at least some of their debt positions, to get out of some of the more expensive salary deals and to exchange shares for debt with some suppliers.

It's not going to be as popular as a bailout - but it is precisely what the system was designed to do.