The Big Three auto makers are hearing mixed messages during Friday’s testimony before Congress with some experts advocating bankruptcies and others warning of the dire economic consequences if one goes under.

 While General Motors (GM), Ford (F) and Chrysler are making their cases as why they need a combined $34 billion in government loans and why they can’t fail, politicians are mixed on whether they should sign off on a bailout.

 Chrysler also seems to be preparing for the worst. The Wall Street Journal is reporting that people familiar with the matter told the paper that Chrysler has hired Jones Day as bankruptcy counsel several weeks ago to help the automaker prepare for the potential for a Chapter 11 bankruptcy filing. 

 During testimony Friday Chrysler Chief Executive Robert Nardelli told lawmakers the company approached owner Cerberus Capital for emergency assistance but was turned down. Nardelli, according to Dow Jones Newswires, was being grilled on why the government should give it money if its private equity backer wont. Nardelli said he assumed Cerberus wouldn’t provide money because it doesn’t have access to additional funds.

 At the start of the hearings Friday Rep. Barney Frank, chairman of the House Financial Services Committee said that a bankruptcy filing of any of the three U.S. car makers will have a negative and widespread impact on the nation’s economy. In his opening remarks, he said the financial crisis would be exacerbated if any of the car companies fell into bankruptcy.

According to news reports, lawmakers from both sides are the aisles want the car makers to consider a pre-negotiated bankruptcy. Congress and the auto makers, however, are reportedly talking about a government-run restructuring that would have the same results as pre-negotiated bankruptcy.

During testimony later Friday, New York University Professor Edward Altman will say that GM’s request for $18 billion in government funds will likely fail to turnaround the company and the struggling automaker could ask for more.

Altman, director of the credit and debt markets research program at NYU, is just one of the people scheduled to testify in the second and last day of congressional hearings on the bailout of the Big Three auto makers.

In prepared remarks obtained by FOX Business Network, Altman will warn that GM could fall into bankruptcy once the initial funds are used.

“GM’s cash burn of perhaps $2 billion a month or more will reduce the assets of GM even further and be exhausted in six to nine months based on current conditions,” Altman will say.

Altman predicts the global automobile industry is facing a “severe economic recession” that could last another two years. He will call for GM and Chrysler to file for bankruptcy protection as soon as possible.

 “The benefits afforded to firms whose assets are protected and whose fixed payments on most liabilities are suspended, while attempting to reorganize under Chapter 11 of the Code, are clear,” the professor, who was one of the early advocates for a GM bankruptcy, will say. The benefit for bankrupt companies is the ability to borrow funds for continuing operations under deptor-in-posession or DIP financing.

While critics of a bankruptcy say the DIP lending market is dried up,  Altman will point to a recent $1.1 billion DIP facility. Circuit City was able to get and a $0.5 billion DIP loan Pilgrim Pride’s got as evidence there is some life in the DIP market. He said the U.S. government should be the DIP lender-of-last-report, which will result in a right sizing of the bankrupt company instead of it being sold off in pieces.

“Without this support, GM and Chrysler are, I am afraid, doomed to eventually file for bankruptcy at a later point, with lower recoveries as asset values deteriorate and job losses mount,” Altman will testify. “Nobody wants to see our American motor carrier icons go into bankruptcy. But, if most stakeholders will be better off and if we minimize the surprise factor, then Chapter 11 reorganization, (not liquidation), with government sponsored DIP lending, is the way to go.”

Meanwhile Felix G. Rohatyn, a financier and a key negotiator in ending New York City’s financial crisis in the 1970’s will say before Congress that a bankruptcy of one of the three auto makers will be fraught with risk to the economy and is likely to  happen if the government doesn’t give it the loans.

“It is an open-ended risk, which would impact all the stakeholders, and ultimately all of our economy. It is worth remembering an old saying: never take a risk you are not prepared to lose,” Rohatyn will say. He will call for any assistance package to recognize the need to realign costs and to deal in realistic assumptions.

Comparing the auto industry to a New York City that was teetering on the brink of bankruptcy in 1975, Rohatyn will say that with the aid of the government, New York City was able to balance the budget and with the exception of the September 11 terrorists’ attacks, enjoy thirty years of prosperity.

“It would have been impossible without government participation, which unlocked the participation of the private financial actors (the banks, the insurance companies and the pension funds),” Rohatyn will say.