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.
CNNâs âYour $$$$$â 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 âlack of vision and foresightâ including an addiction to making passenger vehicles âout of big trucks.â But he only mentioned in passing that the âBig Threeâ must compete against other auto companies that have âmuch lower fixed costs for manufacturingâ 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 âSay No to the Auto Bailout,â Cato Institute Senior Fellow and Business & Media Institute adviser Daniel Mitchell targeted âExtravagant pension benefits and inefficient workplace practices,â 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 industryâs low profits. According to a Nov. 11 press release, Berman said âUnited Auto Workers have bled General Motors dry, leaving the company in a tattered state, and the union members extremely vulnerable.â
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 âa suicidal thing under the current circumstances.â
Voicing his support for a government bailout, Valdes-Dapena said âThe heartbreaker to me here is itâs like watching someone whoâs dying of thirst crawling towards a river and theyâre like 50 yards a way or 50 feet away and they just canât get that last mile âŚ so I think if they could get this help I think we could see, we could see a changed automotive industry.â
But Gattuso disagreed, saying, âThe bailout wonât help solve the basic problemsâ facing the auto industry. Rather than continuing the industryâs problems by dishing out taxpayer money, Gattuso advocated bankruptcy.
âThe way to get change ultimately is through the bankruptcy process or the prospect of bankruptcy. And if it comes to thatâŚ that will provide the legal means to reduce the debts, to reduce the obligations, and get these companies started again,â Gattuso said.
In his article, Mitchell agreed that the Big Three need to fundamentally ârestructureâ and said that handing over taxpayers dollars would be like âgiving an alcoholic the key to a liquor cabinetâ by giving incentives to continue irresponsible business practices. Mitchell likened bankruptcy to âgetting an alcoholic to put down the bottle.â