This wasn't the smartest article. Bankruptcy for the automakers would almost certainly have been chapter 11, not chapter 7. The automakers would not have closed their doors, they would have continued operating as they reorganized and shed some obligations.
The reasons the carmakers were dead was twofold: union labor, pension and benefit costs far in excess of any competitors', and cars not good enough to justify the necessarily much-higher costs. Shedding union benefits and breaking union contracts in bankruptcy would have been enough to make them cost-competitive, perhaps even more so than they are today. Developing new cars would be even more useful, and without having to spend all their time fighting with the unions, management may have actually had a chance at doing that, too.
There was a case for bailing out the automakers, which I've made before, but it's not the one Dionne is making. Letting the automakers go would still cost a lot of jobs as the unions lost protection at a time when we dont have an alternative use for those workers because of the excessive slack in the economy, and workers with negative productivity (because of unreasonably high wages and benefits) are still likely more productive than those same people on unemployment when you're in a big recession. When you're not in a big recession and you don't have so much excess capacity, that's not the case. Thus, bailing out the automakers (especially at an accelerating interest rate, as I've mentioned a million times) would let you delay the reorganization and firing of all of those unproductive workers to a time when the economy is better able to handle it. Thus, it's a justifiable form of temporally redistributionary stimulus. It's not justified as a government-interventionary permanent labor policy.
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