Twenty years after retiring from General Motors, Edward J. Kasperek is echoing what many experts say about the prospect of watching the nation’s largest automaker go bust.
“If GM goes into bankruptcy, we’re in trouble,” the 84-year-old North Buffalo resident said.
And it’s not just retirees such as Kasperek, who could lose their company-funded health care, who would be have to worry.
If the government doesn’t bail out GM, the cash-strapped company will likely be forced into bankruptcy. Many experts say that this would prompt a cascading collapse that would deeply damage parts suppliers, dealers and other automakers — adding millions to the unemployment rolls.
But others argue that a government bailout of the American auto industry would amount to throwing good money after bad and that bankruptcy is GM’s best option.
“Spending billions of additional federal tax dollars with no promises to reform the root causes crippling automakers’ competitiveness around the world is neither fair to taxpayers nor sound fiscal policy,” House Minority Leader John A. Boehner, R-Ohio, said Thursday.
The debate over a proposed $25 billion bailout of America’s Big Three automakers is likely to culminate next week, when Congress tackles the issue in a special session.
Of all the bailouts the federal government has considered in these troubled times, this one cuts especially close to home. GM employs 1,389 at its Tonawanda Engine Plant, part of a grand total of 8,200 Western New Yorkers who work for the Big Three or their suppliers.
Add to that countless GM retirees, and it’s clear that the Buffalo-area economy would suffer deeply if GM were to fail.
Kasperek recalls what retired steelworkers went through after their former employer, Bethlehem Steel, went bankrupt several years ago. Their health care benefits were eliminated, and their pensions were capped.
“All we can do is wait and hope things get a lot better, and I think it will,” he said.
That’s what Democrats in Congress have in mind as they try to craft legislation aimed at saving the Big Three, and most immediately GM. The auto giant lost $2.5 billion in the third quarter and has warned that it could run out of operating cash by the end of the year.
The head of the House Financial Services Committee, Rep. Barney Frank, D-Mass., is working with Sen. Carl Levin, D-Mich., to craft a bill to allow the Detroit-based automakers to tap into $25 billion of the $700 billion that Congress set aside to rescue the financial industry.
U. S. automakers plan to make their case during a hearing Wednesday.
“Without urgent federal intervention, the industry faces the loss of 3 million jobs across the country,“ Ken Cole, GM’s top Washington lobbyist, said in a letter to lawmakers this week.
That’s the way plenty of independent experts see things, too.
If the government failed to intervene and GM were allowed to go bankrupt, “it would be catastrophic,” said Kim Korth, president of IRN, an automotive consulting firm. “It would start a house of cards in the automotive industry.”
A bankrupt GM would fall behind on paying suppliers, putting them on life support and leaving them unable to provide needed parts to Ford, Toyota and other automakers, compounding the problems they face at a time of declining auto sales, Korth said.
That would mean a collapse of the auto industry that could add a full percentage point to the nation’s unemployment rate, deepening and prolonging an already difficult recession, said Nariman Behravesh, chief economist for IHS Global Insight in Lexington, Mass.
Given that alternative, lawmakers are likely to act, Behravesh said. “This is really a situation in which Congress doesn’t really have a big choice in the matter,” he said.
That’s certainly what GM dealers and the United Auto Workers are hoping.
“You want to cripple Western New York? You want to cripple the United States? Start to play around with the auto manufacturers,” said Duane R. Paddock, whose Paddock Chevrolet in Kenmore is one of the nation’s top sellers of Chevys. “That would send the United States into a depression.”
Many experts say that a GM bankruptcy would destroy the company’s brand name and make consumers reluctant to buy GM vehicles, but Paddock wouldn’t go that far.
“There’s no way that customers would be left to fend for themselves” for parts and service in wake of a bankruptcy filing, he said.
Meanwhile, labor union officials worry that if GM or another automaker were to go bankrupt, it would give a judge freedom to nullify labor contracts, creating more doubt for workers and retirees.
“We already experienced this with Delphi,” said Kevin Donovan, assistant director of UAW Region 9. “We don’t want to experience it with GM or Ford or Chrysler.”
Yet to critics of the Big Three, the shredding of union contracts would be one of the advantages of a GM bankruptcy. “Private equity or strategic investors would buy the assets, shut down some plants, fire some union and exempt workers, and probably use the leverage of Bankruptcy Court to get a better deal from the unions,” conservative blogger Jim Manzi wrote on the National Review’s Web site Thursday.
In contrast, “a bailout of GM would be a pure exercise of political power to deliver taxpayer funds to one organized group of citizens at the expense of the country as a whole,” Manzi wrote. “It should be avoided.”
On Capitol Hill, grave doubts have been expressed about an auto bailout.
“I have automobile plants in my district. They pay $25 to $35 per employee per hour,” said Rep. Spencer Bachus of Alabama, ranking Republican on the House Financial Services Committee. “I am sure that I am going to be asked, ‘Congressman, I work at Honda or Mercedes, I make $40 an hour; why are you going to take my taxpayer dollars and pay it to a company who pays their employees $75 an hour?’ ”
The White House also has shown reluctance of late to signing on to the idea of using the financial bailout money to help the auto industry. “That was not Congress’ intent,” White House spokesman Gordon Johndroe said Thursday.
Sen. Christopher J. Dodd, DConn., chairman of the Senate Banking Committee, said there wasn’t enough Republican support to guarantee passage of the bailout legislation, but Sen. George V. Voinovich, R-Ohio, has signed on to the idea.
“The senator believes helping the automakers remain viable is truly putting Main Street over Wall Street,” said Voinovich spokesman Chris Paulitz.
Sen. Charles E. Schumer, D-N. Y, also predicted some GOP support for the measure.
“Whether there will be enough support to override a presidential veto, that I don’t know,” Schumer said.
In the midst of it all, retired GM workers from across the country are expressing a range of emotions, said Jack Dickinson, president of an organization for retired auto industry workers called www.OverTheHillCarPeople.com . “They are confused, angry but still concerned about the corporation they worked all their lives for,” Dickinson said, “and trying to cope and make the best of a bad situation.”
News wire services contributed to this report. jzremski@buffnews.com and mglynn@buffnews.com
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