: Interesting article



Luna.
08-31-05, 01:33 PM
I read an interesting article in the LA Times today that I thought some might find interesting as well.

It is about GM and Ford and how they sold cars at a loss in the first 1/2 of the year.

Some interesting quotes are as follows:

"Every...Caddy... driven off a dealer's lot by a happy customer this year has cost General Motors Corp. a bundle."

"The Company lost an average of $1,227 per vehicle in North America in the first 1/2 of the year..."

"GM isn't alone, as Ford Motor Co. also lost on each vehicle it sold in North America from January to June: $139 a pop..."

The figures show that GM and Ford "remain hamgstrung by their so-called legacy burdens: the continuing cost of supporting huge cadres of retirees and dependents." (This basically refers to retirement and healthcare costs)

Rick Wagoner (GM's chief executive) has "pegged worker and retiree benefit costs at $1,500 per vehicle, versus about $300 at Toyota Motor Corp."

"Add all the other overhead, and U.S. automakers pay about $2,500 more than their Asian competitors to build a vehicle in North America."

"GM, which has 2.5 retirees for each active worker, faces legacy costs of $87 billion in pension obligations and $60 billion for retiree healthcare."



Just something I found a little interesting...:)

04CTSVFLA
08-31-05, 01:42 PM
Yes, people that have the 6yr/100000 mile warranty should be thinking - is Gm going to even be here in 6 years???? They are facing an unbelievable amount of owed money, plus if there losing money on some of there cars, this cant be anything good - cept we save a few dollars.

Luna.
08-31-05, 01:54 PM
Even if they file Chapter 11, I'm quite certain that GM will still be here in 6 years. :D

evil 8
08-31-05, 02:31 PM
GM might suprise you, even if they lose money on each car, they just might make a few bucks in other areas. Have you heard of GMAC,Ditech,even GM service parts are huge cash cows.

Kadonny
08-31-05, 02:39 PM
Yes, people that have the 6yr/100000 mile warranty should be thinking - is Gm going to even be here in 6 years???? They are facing an unbelievable amount of owed money, plus if there losing money on some of there cars, this cant be anything good - cept we save a few dollars.

Come on, of course they will be here. Maybe restructured a bit, but still.

04CTSVFLA
08-31-05, 04:03 PM
yeas but they owe 147 billion......soon.

Luna.
08-31-05, 05:01 PM
Yeah, but you are also dealing with a ~$200 billion dollar company that made $2,8 billion for FYE'04 as well, so it's all relative.


And they won't be paying out all $147 billion at once.

Jurisimprudence
08-31-05, 05:44 PM
As a pension attorney, don't get me started. I don't mean to imply that the underfunded pension obligations are not big or that GM and Ford are not hurting right now, but it's not like the entire amount is due tomorrow. It's amortized over a pretty long period and if they default, the Pension Benefit Guarantee Corporation ("PBGC") will be picking up a lot of that. Since the PBGC is a quasi-governmental agency, that means you and I may be paying for some of this one way or anther. This gives GM and Ford a bit of leverage against Congress to work with them on the funding obligations, since it's better to pay a dime to help them out now than pay a dollar in the near future if they completely failed. Additionally, depending upon the performance of the pension plans in the future (although not really likely) a surplus could exist in these plans as it did just a few years ago. If so, the provision of retirement benefits is arguably free from the companies' perspective.

As for retiree medical costs, unless specifically and expressly vested, which is pretty rare, these benefits can generally be dumped at any time. So, before assuming the company is going belly up or getting stunned by the staggering pension liabilities, make sure you understand whose obligation it is to pay for these benefits, how long they have to pay for them, what leverage this obligation gives them on the unions, the government, suppliers, etc. The legal, social, political and business aspects behind employee benefits can get fairly complex and can easily be manipulated. . .

Geno
08-31-05, 07:47 PM
As a pension attorney, don't get me started. I don't mean to imply that the underfunded pension obligations are not big or that GM and Ford are not hurting right now, but it's not like the entire amount is due tomorrow. It's amortized over a pretty long period and if they default, the Pension Benefit Guarantee Corporation ("PBGC") will be picking up a lot of that. Since the PBGC is a quasi-governmental agency, that means you and I may be paying for some of this one way or anther. This gives GM and Ford a bit of leverage against Congress to work with them on the funding obligations, since it's better to pay a dime to help them out now than pay a dollar in the near future if they completely failed. Additionally, depending upon the performance of the pension plans in the future (although not really likely) a surplus could exist in these plans as it did just a few years ago. If so, the provision of retirement benefits is arguably free from the companies' perspective.

As for retiree medical costs, unless specifically and expressly vested, which is pretty rare, these benefits can generally be dumped at any time. So, before assuming the company is going belly up or getting stunned by the staggering pension liabilities, make sure you understand whose obligation it is to pay for these benefits, how long they have to pay for them, what leverage this obligation gives them on the unions, the government, suppliers, etc. The legal, social, political and business aspects behind employee benefits can get fairly complex and can easily be manipulated. . .

Insightful.