GM under?

[Marquette]

I am not trying to persuade you. Just giving you my perspective. And it's not a matter of religion–it's a matter of ethics.

So it's ethical to fight for as much as you can get now even if you know it's going to screw over future generations? As a childless, godless man, I agree, but I just wanted to make sure we're on the same page.

edit: I would call losing a lot of money stupid, not immoral. Or, is it better if they don't attempt to save the company and just fold completely and don't attempt to do anything? Is that morally the better thing to do?

 

[CitricAcid]

zigg29, don't forget the consumer or the essence of the competition in all of this. We definitely do find it unsettling that the global economy and competition threaten traditional job security, pension, health care, and wages, the benefits that are provided by it include a cheaper, better product, which (if everything is cheaper and better) makes you richer than you would be without it. Economies adapt as skills and knowledge are shifted amongst industries.

 

[Bestwifeever]

In other GM news:

GM shifts tiny Chevy Beat car to U.S. market - MarketWatch

Hope this is not too little (no pun intended), too late--it sounds like a nifty little vehicle.

 

[Midpack]

I am not trying to persuade you. Just giving you my perspective. And it's not a matter of religion–it's a matter of ethics.

Ethics irrespective of the (GM) economics? And why would GM be any different than the countless other companies who've had to renege on pensions and/or healthcare benefits for retirees and active employees?

 

[Lsbcal]

I retired about two years ago from General Motors. Never thought about if they would go into bankruptcy. What happens if that does occur? I have heard different things such as the government protects it or it is fully funded by GM. But don't know for sure. The medical is in the process of being taken over by the UAW. Just wondered, have heard horror stories about companies going under just before someone retired, but not while already in retirement.

I think we should stick to the Glinka's question. I'm sure he's aware of the controversy around GM and the unions. But at this point he's just trying to survive in retirement. So let's cut him some slack!

So what is the history of union health plans where the union has taken over the plan? Or is this pretty unique?

 

[ziggy29]

I think we should stick to the Glinka's question. I'm sure he's aware of the controversy around GM and the unions. But at this point he's just trying to survive in retirement. So let's cut him some slack!

I don't think anyone is "piling on" so I don't see where "slack" even enters into it.

Plus, I don't think you can avoid rattling off past mistakes when it comes to GM's future, because GM's future (and perhaps the survivability of its promises to retirees) depend on not repeating some of them.

The pension fund appears to be okay there, which might mean current retirees are in good shape but current employees may have their frozen at current levels and additional service will not increase it.

As for the health care, I think putting it under union auspices is a very interesting case study, and I'm sure other unionized businesses and unions are watching it carefully to see whether it's a colossal failure or the wave of the future.

 

[brewer12345]

So what is the history of union health plans where the union has taken over the plan? Or is this pretty unique?

Pension for existing retirees appears to be OK, although I don't know how much GM stock or bonds are in the plan.

Retirees health plan is still in the process of transitioning to operation under Union auspices and AFAIK a lot of the funding that is eventually due has not yet made its way to the trust. So retiree healthcare benefits would be sensitive to the exact timing of when GM might enter Ch 11. If they go before funding the trust, benefits will be endangered. If they go after, benefits should be OK.

I think there are other union operated pension and healthcare plans, but don't know how successful they are.

 

[samclem]

As for the health care, I think putting it under union auspices is a very interesting case study, and I'm sure other unionized businesses and unions are watching it carefully to see whether it's a colossal failure or the wave of the future.

It's a brilliant move by GM. "Here--you do it." Vinnie will buy a bigger car for his friends, can hire more "helpers," and workers will get bigger copays. Perfect .

 

[FinanceDude]

Last time I checked GM was not allowed to print it's own currency. That being the case, what other option exist when their obligations exceed their cash flow and nobody wants to lend to them?

Would you feel better if the company went into liquidation and both the retirees and employees all got screwed?

FYI - As of their last form 5500 filing, the GM pension plan had a surplus of $6B So it would be the health benefits at risk, not the pension payments.

Bottom line, if the debt markets aren't thrilled about GM's ability to pay, this will all be a moot point. GM HAS to have some successes or the institutional buyers won't touch their bonds with a 10-foot pole...........

 

[Running_Man]

I retired about two years ago from General Motors. Never thought about if they would go into bankruptcy. What happens if that does occur? I have heard different things such as the government protects it or it is fully funded by GM. But don't know for sure. The medical is in the process of being taken over by the UAW. Just wondered, have heard horror stories about companies going under just before someone retired, but not while already in retirement.

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.

 

[Helena]

Yesterday on the FOX business channel, they interviewed
someone from a automotive group [I forget his name] about
the possibility of GM going bankrupt. He said of the big three
American auto makers, GM was the most financially stable.
He implied that Ford and Chrysler could bankrupt before GM !


~

 

[FinanceDude]

Yesterday on the FOX business channel, they interviewed
someone from a automotive group [I forget his name] about
the possibility of GM going bankrupt. He said of the big three
American auto makers, GM was the most financially stable.
He implied that Ford and Chrysler could bankrupt before GM !


~

I don't know where he got his info, but I think Chrysler will fail first, followed by GM, with Ford last. 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........

 

[al_bundy]

I am not trying to persuade you. Just giving you my perspective. And it's not a matter of religion–it's a matter of ethics.

the UAW forced GM into building nothing but SUV's to be able to pay the benefits. GM execs didn't care because they have 401k style pensions and knew they can just switch jobs. if i was in charge of GM i'd probably give the unions everything they wanted, collect the bonuses while times were good and then split to another job.

Toyota and Honda can make Corollas and Civics and make a lot of money on them. GM loses money on their small cars partly because of UAW contracts.

I hope GM goes Chap 11 so they can fix the company and make it competative again

OT, i'm driving a borrowed Ford Explorer and I think it's a piece of junk compared to my Toyota Matrix. It has more cargo space and that's about it. Both are 2005. The Explorer has that it's falling apart feeling, the interior is horrible, lots of wasted space, crappy sound system, no electrical outlet, my wife complains the AC smells bad, etc. i'm 6' tall and feel a lot more comfortable sitting in the backseat of my Toyota than the Ford. my mom has a buick and it also feels like it's about to fall apart. no wonder the big 3 are doing so bad. only thing going for the Explorer is that it's huge and it gives you a nice feeling of control driving something that big.

 

[ziggy29]

Toyota and Honda can make Corollas and Civics and make a lot of money on them. GM loses money on their small cars partly because of UAW contracts.

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.

 

[al_bundy]

not only benefits

most of GM's plants are old and the areas they were built in have been developed and no room to expand. The foreign automakers build new plants in new areas and the plants are a lot larger making them more efficient.

Not sure about this year, but in 2000 Toyota and Honda were also better in quality. less than 5% of their cars needed repairs before being sent to a dealer compared to something like 75% of GM and Ford's cars needing repairs. Ford and GM tried to improve quality, but the UAW fought it because they said it would mean a loss of jobs for the people that fix the cars before sending them away.

in the end the labor costs of Toyota and Honda were half of GM when you include all benefits. Only reason GM is still in business is they were the big sellers of the truck based SUV's that they charged a huge premium for. now the values are falling so much that i might try to convince my wife to buy a GM next year. I can probably get an Equinox for $6000 to $9000 after my trade in, GM card points and all incentives.

 

[FinanceDude]

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.

 

[retire@40]

...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?

 

[ziggy29]

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.

 

[mike hall]

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.

 

[mike hall]

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.

 

[Texas Proud]

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...

 

[plex]

Mmmmm, people are running for the doors, time to buy some stock.

 

[d]

an article at Bloomberg.com notes: "The company's current market value is smaller than that of Mattel Inc., maker of Matchbox cars"

 

[glinka]

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?

 

[mike hall]

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.