So, either a UAW agreement combined with a government assumption of most pension and healthcare obligations or a Chapter 11 filing (which would void the UAW and pension contracts) is needed. My bet would be on a “prepackaged” Chapter 11 filing - not a disaster for the companies, but I’d still avoid the shares.

As for Chrysler, it is too small to compete properly, has no international presence, and is owned by an overstretched private equity outfit. So hasta la vista, Chrysler!

Another area that’s seen its share of bankruptcies is retailing: Circuit City Stores Inc. (OTC: CCTYQ), Linens n’ Things Inc., Mervyn’s LLC and Sharper Image Corp. (OTC: SHRPQ) were among the biggest names to file in 2008.

That’s not surprising: Consumer spending is down - even in nominal terms - and needs to fall further, as the U.S. consumer rebuilds his savings rate from 2007’s pathetic 0.7% to the 6% to 8% range that was more the norm in the pre-bubble years. The recession will inevitably push more retail chains over the edge, with the highest casualty rate being among high-end and specialty retailers: Saks Inc. (SKS), for example, is taking losses and could be in trouble.

At the bottom end, as a recent Money Morning “Buy, Sell or Hold” feature detailed, Wal-Mart Stores Inc. (WMT) will probably continue to do well as middle class consumers find their budgets pinched and decide to restrict their spending to the land of “everyday low prices.”  

If the recession is even longer and deeper than it’s already been, two other victims of middle-class spending cutbacks could be Target Corp. (TGT), which lacks Wal-Mart’s purchasing ability and whose prices are significantly higher than Wal-Mart’s, and The Home Depot Inc. (HD), which over-expanded during the housing boom, replacing traditional hardware stores, and which lacks the service capability to facilitate recession-resistant D-I-Y (do-it yourself) projects.

Producers of luxury goods, as well as retailers, may find themselves in trouble.

Just this Monday, china-maker Waterford Wedgwood PLC, filed for bankruptcy. The Dublin-based company, with more than 200 years of history, was a victim of social change and the move to less formality as much as it was to the global recession.

Like high-end retailers, luxury-goods producers will suffer from a massive decline in their customers’ purchasing power, as Wall Street bonuses disappear and redundancies soar, Middle Eastern oil sheiks cut back amid declining oil prices and the Russian mafia is forced to ask Prime Minister Vladimir Putin for bailouts. Many luxury goods producers are quite small and private, so their disappearance will not affect investors, but even such a giant as LVMH Moet Hennessey Louis Vuitton (OTC: LVMHF) will not find itself immune to the global downturn, and may be in trouble if that financial malaise remains in place for a long stretch.

It’s a rough tough world out there. As investors, corporate bankruptcy should be our No. 1 risk concern in 2009.