General Motors

[Embar Angylwrath]

Pensions are a negative: However, as with a great many accounting tricks, the loss is minimized by the investments they make - just like every other business on that level. I'm sorry that wasn't clear enough for you. Just like his blaming of unions wasn't, I guess.

Looked at the stock market over the last year? It's lost half its value. How do you think that affects pension values?

[Partha]

I'll take Non Sequiturs for $200, Alex.

[Embar Angylwrath]

I'll take Non Sequiturs for $200, Alex.

Let me put it in sequence for you then. Pensions are defined benefit programs. The obligation exists to pay those pensions, regardless of how well the investments that fund the pensions are doing. Those types of investments are usually in a mix of stocks and bonds. The market for those tanked by half, meaning whatever investment that funded the pensions is only producing half as much as it once did. Dividends are down, stock value is depressed, etc. Yet the Big 3 are still responsible for paying for those pensions, only know they have to pay much much much more to make up the shortfall.

I've connected the dots for you, feel free to break out your crayons.

[Partha]

Yet the Big 3 are still responsible for paying for those pensions, only know they have to pay much much much more to make up the shortfall.

What part of 'there is no current shortfall' do you not get? Is this like the Social Security thing?

[Embar Angylwrath]

Ok, let me get this straight Partha...

You're arguing that the cost gap of the wage/benefit package of the Big 3 vs. non-Big 3 isn't that substantial. Am I correct in my assumption of your position?

[Ddrak]

What part of 'there is no current shortfall' do you not get?

That's not actually a known entity. We know there was no shortfall 11 months ago, but a lot has happened in the stock market in the last 11 months. GM has made no disclosure since then.

Similarly, we also know that aside from the pensions, GM's retirement health plans (which I tend to include in pensions, but others don't) are not funded the same way the pensions are and is running about $45b short as of Dec 2007, which is the insane debt the UAW gets to take on in 2010 and will be hideously underfunded from the beginning.

Most details are here: http://www.nytimes.com/2008/11/25/business/25auto.html

Dd

[Embar Angylwrath]

"We're on the brink with the U.S. auto manufacturing industry. We're down to months left," Chrysler's vice chairman, Jim Press, told The AP in a separate interview. "If we have a catastrophic failure of one of these car companies, in this tender environment for the economy, it's a huge blow. It could trigger a depression."

Bull... shit.

[Partha]

Three million jobs lost, Embar. The unemployment rate is already near 7 percent and we've been in a recession for a year. What will 3 million lost jobs make that figure, and what will that do to Wall Street? Paul Krugman thinks it'll be bad; I'll take his word over yours, given that you're prone to pushing bad figures.

Dd, I suspect the damage will be lighter for GM than expected, given this from your article.

Then, over several years, G.M. overhauled its investment portfolio, replacing billions of dollars worth of stocks with bonds, and adding derivatives to make the duration of the bonds better match the schedule of payments to retirees.

Bond prices can swing too, but G.M. plans to hold the bonds for their interest, not sell them. Ms. Everett said the company believed the interest payments would be more than enough to produce the $7 billion owed to retirees every year.

Currently, 26 percent of G.M.’s pension fund is invested in stocks — well below the typical pension fund’s allocation. David Zion, an analyst at Credit Suisse who tracks corporate pension funds closely, estimates that G.M.’s pension assets have declined by about 15 percent so far this year, compared with a 24 percent decline for the typical pension fund at America’s 500 largest companies. It will be several more months before the size of the losses is known for sure, because companies disclose precise pension numbers just once a year.

When asked why G.M. did not eliminate stocks from its pension fund completely, Ms. Everett cited the controversial accounting rule.

“There’s two sides to this issue,” she said. “One is making sure your pension fund is adequately funded, and the other is that pension income does come into play when you’re looking at the company’s income statement.” No company is eager to eliminate pension income if competitors still have theirs.

[Ddrak]

Like I said before, 3 million is bogus. A bankruptcy would result in the company being split up and sold but that doesn't mean the components would cease to operate.

On the pension thing - the reason it's a big deal is companies that were smart enough not to have pension plans (I never figured why they let themselves be talked into that in the first place) don't have the overheads, and the only way to clear the overheads is to actually go bankrupt and start over with a clean balance sheet. GM may still have $8.5b on the books to pay their pensions, but Toyota in the same situation would have $8.5b in capital than isn't being spent on 0% return expenses. Similarly, GM has a $50b estimated overhead in the health plans (that they are selling off in 2010) that would be $50b a competitor could use to benefit their customers.

While the cost-per-employee really isn't $70, the cost of labor works out at $70 for each employee GM currently hires and that number can only go up. Even if you want to say its a $25-$30 overhead on their books when split amongst active employees, it's only hell of a losing position in a highly competitive market. The pension thing cannot be removed and while it's there, US carmakers will be in a losing position against foreign manufacturers.

Dd

[Partha]

Like I said before, 3 million is bogus. A bankruptcy would result in the company being split up and sold but that doesn't mean the components would cease to operate.

With all due respect, you don't know jack about the car manufacturing business. Auto manufacturing is predicated on just-in-time manufacturing. Any interruption in business will idle those suppliers sure as you're born. And, no, no one will be building cars while the bankruptcy is in court and until the pieces are sold off or closed - which would take months.

[Embar Angylwrath]

Like I said before, 3 million is bogus. A bankruptcy would result in the company being split up and sold but that doesn't mean the components would cease to operate.

With all due respect, you don't know jack about the car manufacturing business. Auto manufacturing is predicated on just-in-time manufacturing. Any interruption in business will idle those suppliers sure as you're born. And, no, no one will be building cars while the bankruptcy is in court and until the pieces are sold off or closed - which would take months.

You know nothing about business bankruptcy. Business operations continue, under DIP rules (debtor in posession). Also, a "pre-packaged" bankruptcy bundles everything up so that everyone knows what to expect when the business officially files the papers. It's barely a hiccup.

[Lurker]

They won't be able to get DIP financing unless it's provided by the Government and consumers aren't likely to shell out money for the latest car from Chapter-11-Motors. Saying there would be "barely a hiccup" strikes me as wrong on the "greeted as liberators" scale.

[Klast Brell]

I'll take Non Sequiturs for $200, Alex.

Let me put it in sequence for you then. Pensions are defined benefit programs. The obligation exists to pay those pensions, regardless of how well the investments that fund the pensions are doing. Those types of investments are usually in a mix of stocks and bonds. The market for those tanked by half, meaning whatever investment that funded the pensions is only producing half as much as it once did. Dividends are down, stock value is depressed, etc. Yet the Big 3 are still responsible for paying for those pensions, only know they have to pay much much much more to make up the shortfall.

I've connected the dots for you, feel free to break out your crayons.

So deferred compensation for former CEO's counts as CEO pay too? GM CEO pay just jumped another several million dollars.

[Partha]

They won't be able to get DIP financing unless it's provided by the Government and consumers aren't likely to shell out money for the latest car from Chapter-11-Motors. Saying there would be "barely a hiccup" strikes me as wrong on the "greeted as liberators" scale.

Be kind. Maybe he thinks auto manufacturing is like Media Play or Circuit City. /snort

[Ddrak]

Auto manufacturing is predicated on just-in-time manufacturing. Any interruption in business will idle those suppliers sure as you're born. And, no, no one will be building cars while the bankruptcy is in court and until the pieces are sold off or closed - which would take months.

You're assuming that GM operates in isolation. Last I looked there was more than one car company and if that company dissolves there's still the demand for cars, which means the components which are left of the parent company still have value to other companies.

It won't be seamless, but there also won't be a 100% unemployment from everyone associated with GM.

I would expect the government to provide DIP financing during the breakup - that would be a sensible approach to protect workers while tearing down such a large company. It's a far better use of money than a bailout.

Dd

[Lurker]

Sounds like you want the pensions vanished.

[Ddrak]

Sounds like you want the pensions vanished.

I think company funded pensions are a good path to company self-destruction, yes. They are an expense that grows over time and can't be reduced in hard times by reducing the workforce. It gives an established company a very large disadvantage to an startup that has no pension overhead. In short, it's a great way for a company to guarantee its future bankruptcy.

Pensions, if they exist anywhere, should be a government based system. Like health care it makes no sense for employers to be involved in social welfare issues.

Dd

[Embar Angylwrath]

They won't be able to get DIP financing unless it's provided by the Government and consumers aren't likely to shell out money for the latest car from Chapter-11-Motors. Saying there would be "barely a hiccup" strikes me as wrong on the "greeted as liberators" scale.

You're buying into the doom and fear issed from the mouths of the CEOs. Those are all "what-if" boogeymen. A prepack bankruptcy certainly alleviates the first concern.. the DIP financing is arranged in advance. The second can be addressed through creative marketing, and the lower cost on the cars thank in part to restructered debt and costs.

[Kulaf]

This is why that $70/hr figure is a lot more accurate than people on this board care to admit. It all comes down to past negotiations over years. The UAW.....of which my father was a member for 30+ years.....in past negotiations passed up raises to get more backend support. They pass on a raise to get more pension......they pass on a raise to get more health benefits. The Big 3 in typical short sighted American fashion was more than willing to put off todays expenses until many years in the future......well many years in the future is NOW.

So you can sit here and argue how the hourly wage for UAW workers shouldn't include pensions.....but when you give up past raises for them.....then they count.

[Embar Angylwrath]

Those pensions are guaranteed (up to a certain amount, I think i's like $55K/year or close to that) by the Federal government. If the Big 3 go BK, those pensions are protected.