If left to your beloved market forces the chaos and disorderly nature of the bankrupcty and the delay in emerging from it would be much more costly and painful.

A new study by the Center for Automotive Research backs this up.

May 28, 2009
‘Disorderly’ Auto Industry Bankruptcies Could Cost 1.3 Million Jobs
A new study suggests that more than 1.3 million U.S. jobs—and up to $68.7 billion in personal incomes—could be lost in the first year if Chrysler and General Motors endure “lengthy and disorderly” bankruptcies.

The Center for Automotive Research says employment and production would fall by 90 percent at Chrysler and GM under such a scenario. It says employment and production would drop 50 percent this year at other automakers operating in the U.S. because of parts shortages or “fire sales” of GM and Chrysler inventories.

The center says the other automakers would resume full production in the second year.

The study defines a successful bankruptcy as one in which both companies would emerge from court protection in less than three months “with capital and ownership structures that allow them to resume vehicle production and continue operations.”

“Our model estimates that a successful bankruptcy process for both GM and Chrysler would have a major impact on the U.S. economy in terms of the maintenance of wages, Social Security receipts, personal income taxes paid, and a reduction in the need for transfer payments,” Sean McAlinden, the center’s chief economist, said in a statement.

Chrysler filed for bankruptcy on April 30. A GM filing is widely expected before a June 1 restructuring deadline set by the U.S. government.