GM Cuts Benefit, Pension Cost Estimates

The auto giant reports that it's reducing its previous expense forecasts because 34,400 U.S. hourly workers took buyouts and early retirement offers.

As a result of workforce reductions, General Motors has lowered its estimated costs for retiree health care spending by $19.3 billion and re-gauged its future pension obligations downward by $3.9 billion.

For both health benefits and pensions, GM increased the discount rate used to calculate its future obligations. The weighted average discount rate the automaker is using to gauge its health benefit obligation, for instance, is now 5.95 percent, a 50-basis-point boost from the 5.45 percent weighted average discount rate used at year-end 2005.

The weighted average discount rate GM is now using to measure the pension obligation was 6.15 percent, a 45-basis-point increase from the 5.70 percent weighted average discount rate used at year-end 2005.

The auto giant said in its 10-Q filing issued on Tuesday that it cut its previous estimates because 34,400 U.S. hourly workers took buyouts and early retirement offers. In the case of the pension benefits, the workforce cutbacks apparently lowered the assumptions on which future payments are based. (Defined-benefit pension benefits are commonly calculated on the basis of a workers’ final average pay before retirement.

GM’s current pension obligation is now $85 billion. Some of the reduced cost estimates stem from the 4,400 workers who chose to take buyouts to leave without getting their full pensions, the Associated Press noted. Workers who chose to stay with the automaker will reportedly remain on the job longer, which further cuts the company’s pension obligations.

GM and other makers of automobiles and parts are straining to stay alive and at the same time keep promises from days when they were in great financial shape to pay their workers hefty pensions. But as a number of major airlines have shown, the car makers may have to choose between survival and meeting these old obligations.

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