Detroit's Big Three Automakers Face Growth in Unfunded Liabilities

As automakers' pension funds earn lower rates of return, their funding needs escalate.

(February 8, 2010) – The pension fund deficits of Detroit’s Big Three automakers stand at $41 billion, according to the U.S. Pension Benefit Guaranty Corp. (PBGC), and their deficit shortfalls are growing as funds bring lower rates of return.

 

Even as Ford is bringing in cash again and the companies continue to meet government funding requirements, PBGC, which assumes pensions when companies fail, has expressed concern about the U.S. auto industry’s financial problems, fueled by a history of uncompetitiveness compared to more affordable foreign automakers.

 

Last year, the government agency took responsibility for at least a half-dozen auto supplier pensions covering 100,000 people, The Detroit News reported. The agency added more than $7 billion to its own deficit. Meanwhile, during bankruptcy last year, GM and Chrysler refused to terminate their pension plans, which companies often do while restructuring.

 

“It is certainly possible that none of these [Big Three] companies ever files for bankruptcy,” Charles E.F. Millard, former PBGC director, told The Detroit News. “It is certainly possible that they all do.” He said the risk to the agency “is significantly greater than it was six or seven months ago.”

 

As of December 31, 2008, General Motors’s pension fund deficit totaled $18 billion, and Ford’s global shortfall stood at $12 billion, according to The Detroit News. At the end of 2008, Chrysler’s pension shortfall stood at $3.6 billion.

 

The pension plans of General Motors, Chrysler Group, and Ford cover nearly 1.3 million people.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

«