View Full Version : GM not going bankrupt

11-21-2005, 07:01 PM
No, they're just closing everything little by little.They had a good 100 year run. Time to put them in the museum of companies time left behind...

11-21-2005, 10:38 PM
They are prime for a takeover.

11-22-2005, 12:04 AM
They are prime for a liquidation.

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11-22-2005, 12:11 AM
Yep. Closing Oldsmobile was handwriting on the wall...

11-22-2005, 12:17 AM
They are prime for a liquidation.

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I apologize for that a smart ass response. I don't see any take-over, since no purchaser can fix GM's core problem, labor costs. There is no management team in the world that can succeed in the auto business paying $100 per hour for blue collar labor costs. Esp. when your chief competitor, Toyota is only spending $30 per hour.

And if you read the UAW's response today, you'll see they just don't get it. GM's only solution is to file for bankruptcy in order to get a judge to void their UAW contract, or burn cash until 2007, when the contracts are up. Either way they'll have to endure a strike. But I bet they lose less money not making cars than they do right now making them...

11-22-2005, 12:27 AM
Plus GM's troubles ripple over to their vendors (such as Delphi). So even if they somehow get through the choppy waters, many of their vendors won't. GM will also lose many present and more importantly future customers before they turn things around. Getting new customers is much more expensive than keeping current customers coming back.

11-22-2005, 01:13 AM
I look forward to my taxes covering the UAW pensions

11-22-2005, 11:53 AM
GM's Next Legal Headache

By Nat Worden
TheStreet.com Staff Reporter
11/22/2005 7:11 AM EST

General Motors' (GM:NYSE) efforts to stave off disaster through cost cuts could be imperiled if a measure to reform pension practices moves through Congress and becomes law.

GM shares hit their lowest adjusted level since 1994 last week after questions about the automaker's accounting methods, along with the threat of a strike at its largest supplier, Delphi (DPHIQ:OTC), rattled the market's confidence. The shares perked up on Thursday and Friday after its CEO, Rick Wagoner, reportedly told employees that the company has no intention of filing for bankruptcy protection.

On Monday, the company raised the ante in the cost calculus, boosting its estimate of expected layoffs by 5,000 to 30,000 over three years.

Still, GM's future is far from assured. The last thing it needs is another wrench in its bid to reduce a cost structure bloated by skyrocketing borrowing and health care expenses. But, with Congress fixing its gaze on pension costs, that might be just what it has.

Pension liability is a particularly sensitive topic for GM, since it has the biggest pension program in the world, promising benefits to more than 600,000 workers, retirees and their surviving spouses.

The Senate passed a bill last week that would require companies to fully finance deficits in their pension funds, giving most of them seven years to do it. It also would require companies to pay higher annual premiums into the federal fund that insures benefits. The bill still has to make it through the House, and President Bush has threatened to veto the measure in its current form. But the 97-to-2 vote in the Senate suggests the measure has broad support.

Under GAAP, GM recently calculated that its pension obligations were over-funded by roughly $1.5 billion. Meanwhile, the Pension Benefit Guaranty Corporation, a federal agency that insures employee pensions if a company fails to meet its obligations, says General Motors' fund falls $31 billion short of what it owes workers.

Both figures are arrived at though legal and legitimate methods of accounting that use different assumptions. The government made its estimate on a termination basis, meaning it measured the amount that GM would owe if it terminated its pension plans immediately. The company's calculation assumes that the fund will keep going years into the future, and it can make payments to workers over time.

GM is required to report its own pension figures using the termination method to the government, but those figures aren't released to the public.

Since its own financial statements show that its pension plan is currently over-funded, GM would not be affected by the bill's provisions aimed at increasing funding for companies that show a gap. However, an additional provision in the Senate's bill adds funding requirements for companies with non-investment grade credit ratings. GM's credit ratings were downgraded to junk status by all three major ratings agencies this year. So, if that provision is eventually signed into law, it could raise GM's funding requirements.

GM spokesman Jerry Dubrowski declined to comment on the bill, noting that it could be changed significantly before it becomes law.

Several senators who supported the bill expressed concern about the credit rating provision that was included in its language, including Republican Senator Mike DeWine of Ohio -- a state that is home to a number of GM manufacturing plants.

"Sen. DeWine still does have concerns about the credit rating provision that is included in the Senate version of this bill," said Jeff Sadosky, a spokesman for Senator DeWine. "The provision penalizes companies by drastically ramping up the funding of their pensions even if they are funding their pensions adequately now. This could hurt manufacturing companies at a time when they are desperately trying to cut costs to compete."

It remains unclear how the bill would specifically affect GM in its current form. Douglas Elliott, president of the Center on Federal Financial Institutions, said the effect may be negligible.

"By the time the bill came to a vote, its provisions were so watered down that I'm not sure it really would put any significant pressure on major auto manufacturers," Elliott said.

Morningstar analyst John Novak noted that GM's pension accounting was one of the things being probed in a sweeping investigation launched by federal regulators into the automaker's financial reporting, adding another wild card to the situation.

Accounting for pension liabilities involves some fairly complex modeling that includes assumptions about future returns on investment, interest costs, health care costs, mortality rates and other factors. In 2003, GM was facing payments totaling $15 billion over four years to shore up its under-funded pension liabilities. To avoid paying increased pension insurance premiums, it sold a $13.1 billion bond issue, using most of the money raised to make the payments.

That was before its credit ratings were reduced to junk status.

"This is a company that is facing a crisis, and they're responding to the problems by moving at a pace that is on the slow side," Novak said.