Obviously, this violates a fundamental principle of bankruptcy law, i.e., that secured creditors get paid before the unsecured ones do. But the secured creditors aren't a Democrat constituency. The unions are. As Barone puts it:
The White House, presumably car czar Steven Rattner and deputy Ron Bloom, is seeking to transfer the property of one group of people to another group that is politically favored. In the process, it is setting aside basic property rights in favor of rewarding the United Auto Workers for the support the union has given the Democratic Party.
A country in which laws and commitments can be set aside at government's behest is many things. But a democratic republic certainly isn't one of them.