The headlines about the economy are grim and seem to repeat the same refrain — the Dow Jones, the NASDAQ and the S&P 500 seem to hit new lows every day. Recent drops have been driven by concerns about the struggling auto industry.
Executives from the big three American Automakers flew in their private jets (trips that cost the struggling companies around $20,000 per round trip) to Washington D.C. to testify before Congress and make their collective case about their companies’ needs for a governmental financial bailout. When asked if they had considered bankruptcy, at least one executive responded that bankruptcy was not a viable option for his company. Is this really true? Sometimes Bankruptcy is the best option for both consumers and businesses that need time to regroup, reassess and restart.
In the case of Ford, GM and Chrysler, a Chapter 11 bankruptcy might allow the auto manufacturer to modify union contracts that were negotiated years ago in a different economic climate. Those who wish to see the automakers take advantage of the bankruptcy laws argue that “legacy” costs, which include health care benefits to retirees and their families and generous retirement benefits add thousands of dollars to the manufacturer’s cost of a car as compared to similar models made by Japanese or Korean companies.
Union members and their supporters in Congress will obviously balk at losing benefits, but you can be sure that there will be strings attached to any bailout, if a bailout does indeed occur.
It appears thatthe debate about the reasons behind the auto manufacturers’ troubles will not yield to any consensus. What do you think? If you are a struggling homeowner trying to save your family’s home, nobody is rushing to bail you out, and your options in bankruptcy are limited. What should the U.S. Congress do and should the automakers consider bankruptcy?