Commentary

The NY Times Stinks at News Analysis

Should General Motors file receive a financial bailout from the U.S. government, or should it be left to deteriorating market conditions that will lead to a bankruptcy filing? This is the question put forth by a NY Times “News Analysis” piece entitled “G.M.’s Troubles Stir Question of Bankruptcy vs. a Bailout .” Unfortunately, this article only added to the cloud of confusion swirling above my head. In my little rant, I will paraphrase the arguments in the Times piece, and then offer my own analysis of the G.M. dilemma.

Let’s look at the political situation first. Democratic members of Congress are urging President Bush to offer a piece of the $700 billion financial bailout pie to the struggling U.S. auto maker – probably because they want to help ensure the survival of the United Automobile Workers union. (This also has the support of President-elect Barack Obama.) Republican lawmakers are resisting – they prefer arming Bible salesmen to restore faith in the economy (just kidding about why they’re against helping G.M. – it’s probably because they want to see United Automobile Workers union die a painful death).

The Times dabbles in the pros and cons of bankruptcy. For the casual observer, filing for bankruptcy seems to be the end of the road – no pun intended – one last stop before burial in the cemetery of failed businesses. But, this is not necessarily the case. Just think of how many airlines have flown customers around the globe while operating under Chapter 11 bankruptcy protection.

The Times tries to make the case that bankruptcy wouldn’t be so bad. They note that G.M.’s shares have already plummeted by just over 90 percent over the past year, flirting with the three dollar mark - the slide to zero is a really just a short distance away. The auto giant’s pension commitments for retirees and their spouses are almost fully financed. And even if G.M. receives bailout funds, it could have to institute painful measures in order to receive bailout funds from the government.

Then they move to the dangers of filing for bankruptcy – the plot thickens! If G.M. operates under Chapter 11 protection it could turn off car shoppers, lessening the likelihood that the company survives the difficult period ahead. According to the Times, a CNW Marketing survey revealed that 80 percent of consumers would choose to buy from rival companies if GM filed for bankruptcy due to concerns about the ability of their cars to maintain value in the future. The Times offers another “but” here… G.M. could follow the airline model and fork over cash to dealers for fixing cars covered under the company’s warranties, which would establish confidence among consumers.

The Times article then address the cost of a G.M. bankruptcy. According to the Center for Automotive Research (I wonder who funds this group?), the economy would suffer a $175 billion hit due to lost wages and tax revenue in the first year. And G.M. could stay in the Chapter 11 “garage” – sorry for that one, cable news writers would be proud, though – for several years.

This piece was not useful to me at all. It tried to show both side of the case, but it left too many details out, leaving the reader to make a decision without enough evidence. And where’s the analysis? This dud of an article just lays out partial cases for bankruptcy and a financial bailout. It’s wishy-washy and therefore should not be dubbed an analytical piece.

I think that General Motors has been suffering from a bloated cost structure for at least a decade, leaving it unable to compete with foreign rivals. G.M. was making money by providing financing to its customers, not by producing cars. Finance, as a business model, is dead for the foreseeable future. G.M. will fail unless it becomes an efficient manufacturer of cars that people want to buy – plain and simple. This means G.M., the United Automobile Workers union and Congress have tough choices to make, and they’re wasting time arguing over the merits of a bailout versus filing for bankruptcy.

© 2008 Splendid Marbles.