Resolving the unfunded pension liabilities for auto workers
at General Motors Company’s European operations proved to be the key to success
in the $2.3 billion sale of GM’s European operation to Peugeot owner, PSA
Group. The sale would make PSA the European Union’s second-largest car
manufacturer, second to Volkswagen.
The $2.3 billion sale was delayed as negotiations continued
to resolve the $10 billion in pension liabilities to about 15,000 Vauxhall and
Opal auto workers, as well as other considerations. In the earlier stages of
the negotiations in March, PSA’s position was to have GM =assume responsibility
for the unfunded liability.
As a result of the sale, GM will assume much of Opel’s
pension obligations and will pay PSA about $2.93 billion to settle pension
underfunding. The sale will give GM about $2 billion in cash, which it plans to
use in a buyback plan, according to news reports.
The pension issue became so important that David Whiston, an
auto analyst with Morningstar Inc., said “pensions are one of the reasons that,
if you’re PSA, you don’t want to do the deal. There may be a way to get it done
if GM keeps the obligation, but PSA gives them cash.”
In its 10k
filed on Dec. 31, 2016, GM said its non-US pension obligations stood at $24
billion, with unfunded liabilities of $11 billion. About $10 billion or 91%, of
those unfunded liabilities were to workers in Canada, Germany and the UK.
Unlike the US, which has mandatory pension funding
requirements, funding a pension in Europe does not require regular cash
infusions. As a result, injecting more cash into the pension plan is not
something PSA wanted to do.
Auto analysts said the deal would be good for GM if it could extract itself from the pension funding
problem, while also unloading an operation that was losing money. A proposal reported by Bloomberg
earlier this month said PSA was willing to pay about $2 billion for Opel and
Vauxhall. This amounted to $1 billion for the purchase and $1 billion being
directed toward pension liabilities, but the bulk of the unfunded liabilities
would be borne by GM.
GM’s 10k also said the company had injected $3 billion more
into its non-US pension plans over the past three years, with a large portion
going into its European pension liabilities. GM plans to put another $970
million into non-US pension plans in 2017, according to the 10k filing.
is largely exiting the European market, but will continue to produce
Chevrolets. GM has owned Opel for almost 90 years, but decided to sell after
the company failed to break even in 2016.
It also has lost about $9 billion from its European operation since
2009. Other factors prompting GM to exit Europe were uncertainty about Brexit, the possibility of new trade tariffs and the
very thin profit margins that exist on the production of autos in Europe.
By Chuck Epstein