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Pension Liabilities Weigh on Big 3

February 7, 2010
3 min to read


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, reported The Detroil News.


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.

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The obligations are growing as the pension funds earn lower rates of return, driving up future funding needs.


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.

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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.


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.

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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.

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