Government's auto plan may close Chrysler

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The biggest headline about the Obama Administration's plan to restructure the car industry was the sacking of GM's (GM) CEO Rick Wagoner. But the more important news was the threat to force Chrysler into Chapter 11 if it cannot do a deal for a partial or complete marriage with Fiat. It indicates that the government may not be willing to spare the industry from bankruptcy. It also shows that if GM cannot engineer a radical restructuring that it may be next into bankruptcy court.

According toThe wall Street Journal, "Chrysler LLC has failed to make its case to the federal government that it can be viable as a stand-alone company, and may have to resort to restructuring through bankruptcy court, the Obama administration's auto industry task force concluded."

The move is either a bluff or a signal that Chrysler is not too big to fail. If the latter is true, the government is willing to put the 60,000 jobs at the number three US car company at risk, in addition to jobs at its suppliers and dealers. In other words, Obama is willing to bet that if Chrysler has to go bankrupt, it will not have a huge effect on the national economy.

So, is the government's move a bluff? With US unemployment headed toward nine or 10 percent and Congress pushing back on administration's spending plans, there is a very good chance that the push for a Fiat merger is simply a way to get the UAW and creditors to fold, and not a real option at all. Not, that is, unless Obama wants to undermine his own recovery plan.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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