CNNMoney.com Writer Calls Potential GM Bankruptcy 'A Suicidal Thing'
Before the government decides to use $25 billion or more taxpayer dollars to rescue General Motors it would be helpful to understand how the company got into its financial predicament.
CNNâ€™s â€śYour $$$$$â€ť on Nov. 16 focused on whether or not to offer GM a $25 billion government bailout, but it glossed over the structural problems of the company â€“ including crippling union contracts.
CNN discussed the prudence of an auto company bailout with Peter Valdes-Dapena, a CNNMoney.com writer who covers the auto industry, and Heritage Foundation Senior Economist James Gattuso.
Host Ali Velshi asked Valdes-Dapena to explain American automakersâ€™ problem with long-term strategy. Valdes-Dapena cited â€ślack of vision and foresightâ€ť including an addiction to making passenger vehicles â€śout of big trucks.â€ť But he only mentioned in passing that the â€śBig Threeâ€ť must compete against other auto companies that have â€śmuch lower fixed costs for manufacturingâ€ť because they do not have a legacy of union obligations.
Velshi did not press him for further explanation of the union problem plaguing the auto companies.
In his Nov. 13 article calling on people to â€śSay No to the Auto Bailout,â€ť Cato Institute Senior Fellow and Business & Media Institute adviser Daniel Mitchell targeted â€śExtravagant pension benefits and inefficient workplace practices,â€ť combined with above-average salaries imposed by unions, as a few of the reasons the automakers are now asking for a government bailout.
Richard Berman, executive director for the Center for Union Facts, also blamed the labor unions for the auto industryâ€™s low profits. According to a Nov. 11 press release, Berman said â€śUnited Auto Workers have bled General Motors dry, leaving the company in a tattered state, and the union members extremely vulnerable.â€ť
While CNN glossed over the union issue, it did include both points of view on the issue of an auto bailout. Valdes-Dapena attacked the GM bankruptcy option, calling it â€śa suicidal thing under the current circumstances.â€ť
Voicing his support for a government bailout, Valdes-Dapena said â€śThe heartbreaker to me here is itâ€™s like watching someone whoâ€™s dying of thirst crawling towards a river and theyâ€™re like 50 yards a way or 50 feet away and they just canâ€™t get that last mile â€¦ so I think if they could get this help I think we could see, we could see a changed automotive industry.â€ť
But Gattuso disagreed, saying, â€śThe bailout wonâ€™t help solve the basic problemsâ€ť facing the auto industry. Rather than continuing the industryâ€™s problems by dishing out taxpayer money, Gattuso advocated bankruptcy.
â€śThe way to get change ultimately is through the bankruptcy process or the prospect of bankruptcy. And if it comes to thatâ€¦ that will provide the legal means to reduce the debts, to reduce the obligations, and get these companies started again,â€ť Gattuso said.
In his article, Mitchell agreed that the Big Three need to fundamentally â€śrestructureâ€ť and said that handing over taxpayers dollars would be like â€śgiving an alcoholic the key to a liquor cabinetâ€ť by giving incentives to continue irresponsible business practices. Mitchell likened bankruptcy to â€śgetting an alcoholic to put down the bottle.â€ť