The Good, the Bad and the Ugly: Auto Bailout Alternatives

Riding Out the Worst

Being the DIP would entitle the government to be the first in line when the automakers start repaying their creditors.

The government, said Jack Williams, a scholar in residence at the American Bankruptcy Institute and a business reorganization professor at Georgia State University, would be "a secured creditor with super-priority lien."

That, he said, "would put taxpayers in the best case possible."

Altman said that while such a plan would be an unprecedented move by the government. It would be more successful than the less-expensive $14 billion emergency loan package now under discussion. A Chapter 11 restructuring -- along with government DIP financing -- could help the automakers avoid liquidation and, in the long run, would result in fewer job cuts, Altman said.

The safety net of a bankruptcy, he said, could help the automakers ride out the worst of the recession.

"In two years' time, when they come out of the bankruptcy, there's a better chance that the economy is going to be in better shape and the credit markets will be flowing again to help the companies," he said.