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Old 07-03-2008, 01:20 PM   #41
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Originally Posted by ziggy29 View Post
I don't remember where I heard it and I can't vouch for the source, but I remember hearing that about $2,000 of the cost of every GM vehicle went to paying pension and health care benefits.
In the early 90's when I was in the auto business, I talked to a guy who worked in Detroit for GM.

He told me that basically HALF the MSRP was the cost of production, and the rest was a couple thousand dollars profit, health care costs, pensions costs, etc.

So let's say an SUV listed for $28,000. GM could MAKE the car for $14,000 worth of raw materials and labor, but the cost to the dealer net holdback was about $24,000. So about $7-$8,000 of EVERY car went to paying the lifetime health care, pensions, etc..........

Maybe he was telling me a BS story, but it sure seems to have played out that way.

FWIW, Hyundai's costs to produce are going up quickly, so their price advantage over Honda and Toyota due to lower costs may be gone in a couple more years.
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Old 07-03-2008, 02:40 PM   #42
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...Ford raised about $23 billion in bonds in 2006, (good timing), and they have more money than the other two. GM's cash burn has to be billions a month........

I could never understand why old companies like this need to borrow cash.

If they just put a little aside every month from the time they started to be profitable, wouldn't they have amassed more money then they would know what to do with?
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Old 07-03-2008, 02:46 PM   #43
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If they just put a little aside every month from the time they started to be profitable, wouldn't they have amassed more money then they would know what to do with?
The thing is this: When you're still rapidly growing and becoming more and more profitable, you can (maybe) borrow money at 6% that you believe will allow you to achieve a 15% return on borrowed capital. So you borrow the money.

Then with expanded profits, you could pay off the debt faster...but you can still borrow for more expansion at 7% that you think will net you a 13% return on more borrowed money. So you expand and grow some more, and grow profits...

Rinse, lather and repeat until there's just a lot of debt and not a lot of growth potential.
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Old 07-03-2008, 03:04 PM   #44
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Maximum monthly guarantee tables (PBGC.gov)

Your pension is safe up to the maximums listed, if your pension is more than the maximum it will be cut to the maximum amount if PBGC takes over the plan. Early retirement (say you retired at 60 but are now 65) will cause the amount to be reduced.

As for underfunding, it is my understanding that the funding status considering the company is a going concern, I believe GM would be woefully underfunded if the plan were to be terminated. The last estimate I saw was as of 2005 where GM claimed 2 billion overfunded as a going concern but the calculation showed 31 billion underfunding if the plan were terminated.
Is GM pension fund $31 billion short? - International Herald Tribune

With the recent stock market decline underfunding is quite likely.
I am about to go through this with a different company. Here's what I believe to be correct:
1. In order for PBGC to take over a pension it insures, the pension must
be underfunded, and Co. must be in Bankruptcy.
2. Each Pension is then administered according to the language in that
co.'s plan document. so details may be different for each case.
3. Employees are divided into different groups depending on plan
language concerning eligibility for retirement.
4. Top group are those employees who have been eligible for retirement
for 3 years. they would have their pensions payments reduced by a
factor computed by assuming they retired 3 years before plan
termination date.(whatever penalties plan doc. specifies)
5. Other employees who don't meet the criteria in 4. above would
probably receive no more than the amount from the PBGC maximum
table cited.

If a person is 3 years older than normal retirement age specified
in the plan they probably would see minimal impact.
This gets really complicated. You can read some of this at the PBGC website.
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Old 07-03-2008, 03:30 PM   #45
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Another tidbit I have learned--underfunded. the IRS has rules and regs regarding proper pension funding in accordance with the ERISA, and Pension reform ACT. PBGC has it's own yardstick to determine if a pension is properly funded, and their evaluation is what counts, and it is significantly higher.
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Old 07-03-2008, 06:22 PM   #46
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The "nasty surgery" would be perfectly legal but, in my mind and by my standards,, immoral as to defaulting on negotiated, contracted benefits and pension commitments.

But that is what BK is for... to 'fix' a financial problem... morality does not have a lot to do with it....

Now, you would also think that someone who ran up a big medical bill because of an accident who went through bankruptcy to be able to move on is also 'immoral'? I mean, they knowingly ran up that bill... just curious...
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Old 07-03-2008, 07:24 PM   #47
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Mmmmm, people are running for the doors, time to buy some stock.
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Old 07-03-2008, 08:10 PM   #48
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an article at Bloomberg.com notes: "The company's current market value is smaller than that of Mattel Inc., maker of Matchbox cars"
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Old 07-03-2008, 11:23 PM   #49
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All this talk about the Pension protection act and PBGC is confusing. Also, the age differences are a question. I took the early buyout at age 55. Partly the reason was my plant was closing. What would a time frame for bankruptcy to go through? Is it possible someone would take over the company?
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Old 07-03-2008, 11:48 PM   #50
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Time frame for Co. to enter BK is anyone's guess. After they enter BK they would have to go before the appointed judge and request to terminate the pension. If that is approved, and PBGC takes over the pension I believe they have to give 60 days notice before plan termination date. If by taking a "buyout" you mean you took a lump sum settlement from the co.(at an earlier date) then I don't think that would be affected.
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Old 07-03-2008, 11:52 PM   #51
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Wow, nice, a 1-year drop of 76%, and it was dropping before this year too. Either this will be a huge home-run or there's a (very small) chance it will go bankrupt or (somewhat small) chance it will almost go bankrupt and get propped up by government loans or some other form of capital if it really is in trouble. I remember how Chrysler went down to $3 when people were worried about whether they'd go bankrupt a year ago, then the stock shot up a ridiculously huge amount when Cerebrus finally propped them up.
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Old 07-04-2008, 12:04 AM   #52
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If by taking a "buyout" you mean you took a lump sum settlement from the co.(at an earlier date) then I don't think that would be affected.[/quote]

Buyout was not lump sum. Really it was called retirement incentive and was paid without changing my retirement amount or medical coverage.
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Old 07-04-2008, 12:14 AM   #53
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I blame GM management for this but I suppose there is more than enough blame to go around. Looking back at the government bailout of Chrysler and how poorly it eventually turned out that seems like it would be a bad solution to this problem.
Jeff
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Old 07-04-2008, 12:39 AM   #54
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Originally Posted by glinka View Post
If by taking a "buyout" you mean you took a lump sum settlement from the co.(at an earlier date) then I don't think that would be affected.
Buyout was not lump sum. Really it was called retirement incentive and was paid without changing my retirement amount or medical coverage.[/quote]

The way PBGC was setup, was to create a situation where it did not benefit an employee to "hurry up and retire". If an employee is receiving monthly
pension payments from their Co.'s pension plan, then they would be subject to the reductions that PBGC applies. Everything hinges on the specific language in your Pension Plan Document at the time the plan is terminated (if that is what happens). For instance, under PBGC, an employee who is 56 and retired, and an employee who is 56 and still working would be treated essentially the same (provided they both had earned the same pension payments).
The problem I've had with this is each situation is some what unique, and it is hard to get good information until the "stuff" hits the fan. then it is too late to change much.
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Old 07-04-2008, 03:13 AM   #55
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The "nasty surgery" would be perfectly legal but, in my mind and by my standards,, immoral as to defaulting on negotiated, contracted benefits and pension commitments.
Bingo. When I bought my current car (a Buick), I only looked at American cars because I wanted to support an American company and American workers. If GM goes bankrupt and does that 'nasty surgery' they will loose a whole lot of goodwill with people like me. And I'll bet that people like me make up a good percentage of GM's customers. I mean, until about three years back quality and stylishness were not GM's strongpoints.
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Old 07-04-2008, 03:31 AM   #56
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Wow, nice, a 1-year drop of 76%, and it was dropping before this year too. Either this will be a huge home-run or there's a (very small) chance it will go bankrupt or (somewhat small) chance it will almost go bankrupt and get propped up by government loans or some other form of capital if it really is in trouble. I remember how Chrysler went down to $3 when people were worried about whether they'd go bankrupt a year ago, then the stock shot up a ridiculously huge amount when Cerebrus finally propped them up.
Yeah, it is kind of sad. After about a decade of producing cars that were bland, forgettable, and with quality problems, GM finally starts to produce cars that are exciting (the Chevy Malibu, Saturn Vue, Buick LaCrosse and Lucerne). And then this gas price shock happens. I think if they'd have gotten another three or four years it could have been a great turnaround story. As it is I think they still have a chance.
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Old 07-04-2008, 06:46 AM   #57
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Originally Posted by ziggy29 View Post
I don't remember where I heard it and I can't vouch for the source, but I remember hearing that about $2,000 of the cost of every GM vehicle went to paying pension and health care benefits.
Apparently the steel cost per car at GM is less than med/pension costs.

Boggling and unsurvivable.
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Old 07-04-2008, 11:15 AM   #58
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Bingo. When I bought my current car (a Buick), I only looked at American cars because I wanted to support an American company and American workers. If GM goes bankrupt and does that 'nasty surgery' they will loose a whole lot of goodwill with people like me. And I'll bet that people like me make up a good percentage of GM's customers. I mean, until about three years back quality and stylishness were not GM's strongpoints.
my FIL went car shopping last year. all the Acuras he looked at were made in Ohio
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Old 07-04-2008, 04:39 PM   #59
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I rarely buy individual stocks but when i do they are pure speculation, never an investment. bought gm on tuesday at 12o pm for 10.92. sold it at 3:00pm up 21%. it dropped right after that and bought it again wed at 10:50....... lets see what happens.

i bought citi bank about 6 months at 32 and got stopped out at 30.00. man was that a blessing
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Old 07-04-2008, 06:17 PM   #60
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As a veteran of the United Airlines Bankruptcy, here's a few comments on pensions:
The accounting for an active plan is different from when a plan is terminated, which can be initiated either by the PBGC or the company in Ch 11.
If you are still working, the PBGC considers the day the plan is terminated, then they calculate your vested benefits as if you had retired 3 years prior to that, using the worst contract within the last 5 years. Early retirement penalties in the plan are a killer. Also using their, not the company's or union's, estimate of the assets of the plan.
If you are already retired, over 65, and have a small pension; you won't be hurt too much.
In my own case, I was 59 and still working (had to retire at 60), had a large projected pension, and part of that was unfunded due to IRS regs. I am getting 22% of that pension. Lucky for me, we had a VERY good DC plan also, and our union negotiated a big convertible note deal, only for those working in Jan 2005, that paid off when UA came out of Ch 11. For me, the net effect was very tolerable. For some people, it was disasterous.
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