“Auto industry pulls back from pension brink” |
| Auto industry pulls back from pension brink Posted: 19 Nov 2010 10:26 AM PST WASHINGTON (Reuters) – U.S. automakers and suppliers, led by a resurgent General Motors Co (GM.N), have retreated from the brink of a pension crisis, to the relief of the deficit-heavy pension insurance program. Pension plans at bankrupt companies did not collapse as feared in the recession-fueled auto industry downturn. More companies are now maintaining plans, beginning with a restructured GM which assured investors ahead of this week's public offering that it wants to fully fund those accounts. "As the economy recovers, we're seeing fewer pension terminations, including the auto sector," said Jeffrey Speicher, a spokesman for the Pension Benefit Guaranty Corp (PBGC). The outlook for the agency that insurers corporate pensions for 44 million workers and retirees looked grim in 2008 and 2009. Its potential exposure to future losses from financially weak companies had more than tripled due to the recession. With GM and Chrysler on the precipice of failure, and a number of parts suppliers shaky in their own right or tied to the fate of the big carmakers, the auto industry presented a particularly serious problem for the PBGC. Wholesale failure of auto-related pensions would have driven up the agency's long-term deficit and dramatically affected retirees, many of whom would have seen their promised benefits cut sharply in retirement. The taxpayer-funded restructuring of GM and Chrysler Group, which required them to maintain their plans, has borne fruit with stronger balance sheets, improving sales, and profits. Although Delphi Corp defaulted on pensions in bankruptcy, other parts suppliers such as Lear Corp (LEA.N), Cooper Standard, Accuride, and Mark IV LLC, kept their plans alive following negotiations with the PBGC. Visteon Corp (VSTO.OB), a big Ford Motor Co (F.N) supplier, considered terminating three of its four plans at an estimated hit of more than $500 million to the PBGC deficit. But before emerging from Chapter 11 in October, Visteon said it would keep those plans. "This is a much nicer story than the problems with the steel and airline industries," said Ron Gebhardtsbauer, a former PBGC chief actuary and currently a senior faculty member at the Penn State University's Smeal College of Business. "Once we took over (pensions at) one big company, then other big companies tried to figure out how to reduce their liabilities. It's important to keep the first car company out so that it doesn't start a domino effect," he said. GM and Chrysler still have large pension shortfalls and their ability to materially close the gaps or fully fund the plans depends on future profitability and investment performance. Easing concern over GM pensions was a priority for GM executives when lining up investors for the initial public offering. "Our overall vision is to repay all of our debt and fully fund our pension plan over the next few years," GM Chief Financial Officer Chris Liddell said on Thursday. GM said it would devote $2 billion in stock and $4 billion in cash toward its U.S. pension shortfall after the IPO, leaving a gap of $13 billion. Doug Elliott, a Brookings fellow, pension expert and former investment banker, said that GM's pension underfunding for the sheer size of its plans is not that big. "Investors in general are a little too calm about pension deficits," Elliott said. "I don't think it's surprising with GM that investors would still want to go in." Chrysler, 10 percent owned by the U.S. Treasury and now under management control of Italy's Fiat SpA (FIA.MI), turned an operating profit last quarter and plans an IPO next year. Chrysler did not provide estimates of its current pension shortfall and has not made or promised to boost contributions to its pension funds. A Government Accountability Office report earlier this year said heavy pension costs still present a financial risk and could, if GM and Chrysler were to stumble again, pit the interest of taxpayers, who will own between 33 percent and 37 percent of GM after the IPO, against the health of the PBGC, which would again find itself facing much higher deficits. (Additional reporting by Kevin Krolicki in Detroit; Editing by Tim Dobbyn) This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
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