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.
CNN’s “Your $$$$$” 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 – 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 automakers’ problem with long-term strategy. Valdes-Dapena cited “lack of vision and foresight” including an addiction to making passenger vehicles “out of big trucks.” But he only mentioned in passing that the “Big Three” must compete against other auto companies that have “much lower fixed costs for manufacturing” 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 [1]article calling on people to “Say No to the Auto Bailout,” Cato Institute Senior Fellow and Business & Media Institute adviser Daniel Mitchell targeted “Extravagant pension benefits and inefficient workplace practices,” 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 industry’s low profits. According to a Nov. 11 press release, [2]Berman said “United Auto Workers have bled General Motors dry, leaving the company in a tattered state, and the union members extremely vulnerable.”
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 “a suicidal thing under the current circumstances.”
Voicing his support for a government bailout, Valdes-Dapena said “The heartbreaker to me here is it’s like watching someone who’s dying of thirst crawling towards a river and they’re like 50 yards a way or 50 feet away and they just can’t get that last mile … so I think if they could get this help I think we could see, we could see a changed automotive industry.”
But Gattuso disagreed, saying, “The bailout won’t help solve the basic problems” facing the auto industry. Rather than continuing the industry’s problems by dishing out taxpayer money, Gattuso advocated bankruptcy.
“The way to get change ultimately is through the bankruptcy process or the prospect of bankruptcy. And if it comes to that… that will provide the legal means to reduce the debts, to reduce the obligations, and get these companies started again,” Gattuso said.
In his article, Mitchell agreed that the Big Three need to fundamentally “restructure” and said that handing over taxpayers dollars would be like “giving an alcoholic the key to a liquor cabinet” by giving incentives to continue irresponsible business practices. Mitchell likened bankruptcy to “getting an alcoholic to put down the bottle.”