This is news that is both somewhat expected and also worrisome, from The Wall Street Journal this morning:

Outside advisers to the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors Corp. and Chrysler LLC, in case the two auto makers need it, said several people familiar with the matter.

While acknowledging the grimness of the task, administration officials involved in the auto talks said they are trying to find a way to restructure the two companies without resorting to bankruptcy proceedings. They stressed the latest efforts were "due diligence" on the part of the government advisers, and that bankruptcy financing may not be necessary.

Still, people involved in talks with senior Obama administration officials said that the administration believes that the option of Chapter 11 filings by the two auto makers needs to be seriously considered.

"Everything is on the table right now," one person involved in the matter said, adding that President Barack Obama doesn’t want to see more massive job losses in the auto industry. His administration also doesn’t want to anger the United Auto Workers by appearing to push for bankruptcy, this person added.

   It may be obvious to everyone reading but the bad news is that a bankruptcy judge can tear up labor contracts and lay down the line about the structure of wages and benefits. If the UAW’s contracts get ripped up, you can kiss the middle class goodbye.

   UPDATE: from the NYTimes (at least this isn’t bankruptcy):

The Ford Motor Company can substitute its stock for as much as half of its payments into a retiree health care trust under a deal announced Monday by the automaker and the United Automobile Workers union.

The agreement could form the basis for similar deals with General Motors and Chrysler, which need to cut costs and demonstrate that they can survive under the terms of their loans from the federal government.

“The modifications will protect jobs for U.A.W. members by ensuring the long-term viability of the company,” the union’s president, Ron Gettelfinger, said in a statement.

Union leaders plan to vote on the proposal early this week, Mr. Gettelfinger said, before presenting the deal to U.A.W. members at Ford for ratification. The changes would also require court approval.