This Is Progress? GM Loses $4.3B, Needs $12.3B to Fund Its Pension
Posted Apr 07, 2010 02:40pm EDT by Peter Gorenstein in Investing, Recession, Autos, Politics
General Motors is out of bankruptcy but the troubled car giant still can't turn a profit. The company lost $4.3 billion in its first six months since emerging from bankruptcy. GM Chief Financial Officer Christopher P. Liddell is confident the road ahead will be smoother, saying "there's a chance of achieving profitability in 2010."
Let's hope so. The U.S. government owns 61% of the company.
GM is also struggling with its pension obligations; a large portion of GM's loss was due to a settlement with the United Workers Automobile Workers union over retiree health care liabilities.
According to a report by the Government Accountability Office, GM will need to add $12.3 billion into its pension fund by 2014. If GM and Chrysler (which is in the hole $2.6 billion) terminate their pensions, the Pension Benefit Guaranty Corporation – funded by, you know who - would then become responsible for as much as $14.5 billion in unfunded liabilities. However, if GM starts making money the company will be able to pay into the pension, the GAO reports.
Underfunded pensions are a widespread problem, not just for the private sector, as Henry and Aaron discuss in the accompanying clip.
The New York Times reports, an independent report of California's three big pension funds found a shortfall of more than half a trillion dollars. This could lead to a major political problems, especially when and if states raise taxes to bridge the gap. As Aaron points out, this could enrage taxpayers fed up with paying for government worker benefits at a time when the average government employee is making more than private sector workers and receives better benefits.
