Post by TonyV on Feb 7, 2010 23:46:39 GMT -5
Pension liabilities weigh on Big 3
Automakers face growing deficits as funds bring lower rates of return
David Shepardson / Detroit News Washington Bureau
Washington -- The pension plans of Detroit's Big Three automakers, covering nearly 1.3 million people, still face growing shortfalls even though Ford Motor Co. is making money again and its domestic rivals slashed costs dramatically in bankruptcy.
The huge pension liabilities weighing down the companies' balance sheets are left over from the "legacy" costs that for so long made Detroit automakers uncompetitive against their lower-cost foreign rivals.
The obligations are growing as the pension funds earn lower rates of return, driving up future funding needs.
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General Motors Co.'s pension fund deficit stands at $18 billion, The Detroit News has learned from documents not yet made public, and Ford said last week that its shortfall worldwide grew to $12 billion as of Dec. 31, up $500 million from a year ago.
GM's pensions were underfunded by $12.7 billion at the end of 2008 using different accounting rules, so it isn't clear precisely how they fared.
Chrysler Group LLC, with about 200,000 participants in its plans, declined to release its pension balance sheet, but as of the end of 2008 pegged it at $3.6 billion.
The underfunding does not pose an immediate danger to current and future retirees, but automakers will have to tackle it and there is no easy fix.
"It is a big cautionary sign that is going to have to be addressed," said Harley Shaiken, a professor at the University of California, Berkeley, who studies the auto industry. "This is the culmination of the work lives of hundreds of thousands of people, so it is not a small matter."
Proposals pending in Congress, Shaiken said, would just "delay the payments, so it is not clear how that is going to eventually be resolved."
GM and Chrysler shed tens of billions of dollars in costs while in bankruptcy last year, but chose not to terminate their pension plans, as companies often do when they seek court protection while they restructure.
The Pension Benefit Guaranty Corp., the government pension insurer, last year assumed responsibility for at least a half-dozen auto supplier pensions covering 100,000 people, adding more than $7 billion to its own deficit. The agency was relieved that it didn't have to pick up GM's and Chrysler's as well.
Still, the PBGC has expressed concerns about the overall state of auto industry pensions. GM spokeswoman Noreen Pratscher said this week that the Detroit automaker is considering a voluntary contribution to its hourly pension plan, as a bookend to its action on behalf of hourly workers at its former parts unit, the bankrupt Delphi Corp. She didn't disclose the amount.
GM agreed to make up $1 billion in losses that Delphi employees stood to lose when the PBGC took over the Troy-based supplier's pension plans. That contribution would cut GM's deficit.
Some positive news
Despite the looming deficits, the news is not all bad.
GM and Ford say they are not required to make any contributions to their U.S. plans this year, which would allow them to invest more money in other things, such as new products, that could generate much-needed revenue.
And Chrysler's pensions are benefitting from a deal with its former parent company, Daimler AG. The German automaker will contribute $600 million to Chrysler's underfunded pension plans -- including $200 million in payments this year and in 2011.
A Chrysler spokesman said the company will update its employees and retirees this spring on its funding obligations.
GM's hourly plan, which covers 505,000 current and future participants, has $56.2 billion in assets and liabilities of $70.5 billion. The salaried plan, covering 197,000 people, has assets of $29.2 billion and liabilities of $32.9 billion.
"GM believes the pension plans are adequately funded to meet GM's pension obligations and that no new contributions are legally required in the near term," said Pratscher.
Under different accounting rules, GM said its pension plans were underfunded by $12.7 billion as of the end of 2008. GM may provide a better yearly comparison when it files its annual report this spring.
Last year, GM estimated it would need to make $6 billion payments in 2013 and 2014 -- a burden that concerned the Obama administration's auto task force.
"GM needs to sell 900,000 additional cars a year" to make those payments, the administration said last March.
Dearborn-based Ford, the only Detroit automaker that did not take government bailout money, reported its first annual profit last year since 2005.
But Ford said its U.S. pension shortfall had grown by $500 million to $12 billion as of Dec. 31 -- raising concerns among some Wall Street analysts.
Ford, whose U.S. pension plans cover 325,000 participants, reported a 14.4 percent return on its assets last year. By comparison, the S&P 500 had a 23 percent return last year.
Concerns at Ford
The biggest factor contributing to Ford's pension fund shortfall is that the amount it will need to meet its future obligations is growing, because low interest rates are driving down the predicted rate of return on the assets in the pension fund.
Ford told Congress in 2008 it thought it would have to make a pension plan payment between $3 billion and $4 billion in 2010.
But as a result of an improvement in "market conditions," Ford doesn't expect to be required to make a U.S. pension plan payment this year.
"We take our obligations very seriously, managing our plans with integrity and prudence even during difficult times," said Ford spokesman John Stoll. Ford will have to address pension issues as part of the planned sale of its Swedish unit, Volvo. The automaker made $600 million in contributions in 2008 when it sold the Jaguar and Land Rover brands.
JP Morgan auto analyst Himanshu Patel said in a research note that Ford's pension underfunding was "substantially worse than expected" -- $3.5 billion lower in assets than JP Morgan had estimated.
Automakers face growing deficits as funds bring lower rates of return
David Shepardson / Detroit News Washington Bureau
Washington -- The pension plans of Detroit's Big Three automakers, covering nearly 1.3 million people, still face growing shortfalls even though Ford Motor Co. is making money again and its domestic rivals slashed costs dramatically in bankruptcy.
The huge pension liabilities weighing down the companies' balance sheets are left over from the "legacy" costs that for so long made Detroit automakers uncompetitive against their lower-cost foreign rivals.
The obligations are growing as the pension funds earn lower rates of return, driving up future funding needs.
Advertisement
General Motors Co.'s pension fund deficit stands at $18 billion, The Detroit News has learned from documents not yet made public, and Ford said last week that its shortfall worldwide grew to $12 billion as of Dec. 31, up $500 million from a year ago.
GM's pensions were underfunded by $12.7 billion at the end of 2008 using different accounting rules, so it isn't clear precisely how they fared.
Chrysler Group LLC, with about 200,000 participants in its plans, declined to release its pension balance sheet, but as of the end of 2008 pegged it at $3.6 billion.
The underfunding does not pose an immediate danger to current and future retirees, but automakers will have to tackle it and there is no easy fix.
"It is a big cautionary sign that is going to have to be addressed," said Harley Shaiken, a professor at the University of California, Berkeley, who studies the auto industry. "This is the culmination of the work lives of hundreds of thousands of people, so it is not a small matter."
Proposals pending in Congress, Shaiken said, would just "delay the payments, so it is not clear how that is going to eventually be resolved."
GM and Chrysler shed tens of billions of dollars in costs while in bankruptcy last year, but chose not to terminate their pension plans, as companies often do when they seek court protection while they restructure.
The Pension Benefit Guaranty Corp., the government pension insurer, last year assumed responsibility for at least a half-dozen auto supplier pensions covering 100,000 people, adding more than $7 billion to its own deficit. The agency was relieved that it didn't have to pick up GM's and Chrysler's as well.
Still, the PBGC has expressed concerns about the overall state of auto industry pensions. GM spokeswoman Noreen Pratscher said this week that the Detroit automaker is considering a voluntary contribution to its hourly pension plan, as a bookend to its action on behalf of hourly workers at its former parts unit, the bankrupt Delphi Corp. She didn't disclose the amount.
GM agreed to make up $1 billion in losses that Delphi employees stood to lose when the PBGC took over the Troy-based supplier's pension plans. That contribution would cut GM's deficit.
Some positive news
Despite the looming deficits, the news is not all bad.
GM and Ford say they are not required to make any contributions to their U.S. plans this year, which would allow them to invest more money in other things, such as new products, that could generate much-needed revenue.
And Chrysler's pensions are benefitting from a deal with its former parent company, Daimler AG. The German automaker will contribute $600 million to Chrysler's underfunded pension plans -- including $200 million in payments this year and in 2011.
A Chrysler spokesman said the company will update its employees and retirees this spring on its funding obligations.
GM's hourly plan, which covers 505,000 current and future participants, has $56.2 billion in assets and liabilities of $70.5 billion. The salaried plan, covering 197,000 people, has assets of $29.2 billion and liabilities of $32.9 billion.
"GM believes the pension plans are adequately funded to meet GM's pension obligations and that no new contributions are legally required in the near term," said Pratscher.
Under different accounting rules, GM said its pension plans were underfunded by $12.7 billion as of the end of 2008. GM may provide a better yearly comparison when it files its annual report this spring.
Last year, GM estimated it would need to make $6 billion payments in 2013 and 2014 -- a burden that concerned the Obama administration's auto task force.
"GM needs to sell 900,000 additional cars a year" to make those payments, the administration said last March.
Dearborn-based Ford, the only Detroit automaker that did not take government bailout money, reported its first annual profit last year since 2005.
But Ford said its U.S. pension shortfall had grown by $500 million to $12 billion as of Dec. 31 -- raising concerns among some Wall Street analysts.
Ford, whose U.S. pension plans cover 325,000 participants, reported a 14.4 percent return on its assets last year. By comparison, the S&P 500 had a 23 percent return last year.
Concerns at Ford
The biggest factor contributing to Ford's pension fund shortfall is that the amount it will need to meet its future obligations is growing, because low interest rates are driving down the predicted rate of return on the assets in the pension fund.
Ford told Congress in 2008 it thought it would have to make a pension plan payment between $3 billion and $4 billion in 2010.
But as a result of an improvement in "market conditions," Ford doesn't expect to be required to make a U.S. pension plan payment this year.
"We take our obligations very seriously, managing our plans with integrity and prudence even during difficult times," said Ford spokesman John Stoll. Ford will have to address pension issues as part of the planned sale of its Swedish unit, Volvo. The automaker made $600 million in contributions in 2008 when it sold the Jaguar and Land Rover brands.
JP Morgan auto analyst Himanshu Patel said in a research note that Ford's pension underfunding was "substantially worse than expected" -- $3.5 billion lower in assets than JP Morgan had estimated.