From The Detroit News: http://www.detroitnews.com/article/20130129/AUTO0102/3012904...Read this carefully:Ford Motor Co.'s pension deficit widened in 2012 by 21 percent and the Dearborn automaker vowed Tuesday to boost contributions to its under-funded pensions by $5 billion in 2013.Despite the fact that Ford pumped $3.4 billion into its worldwide pension plans in 2012 — over the $1.1 billion it infused in 2011 — the automaker's pension plans underfunding widened.Ford said its pensions are now underfunded by $18.7 billion, up from $15.4 billion. Its U.S. plans are underfunded by $9.7 billion, up from $9.4 billion.Another way to look at it: The pension plan is a MAJOR drain on Ford cash. This will be a negative for the company until it's fixed. A couple things on "the fix":* "Newer" employees aren't in the pension plan. That's been the case for a few years now (someone here can provide details). The deficit is due to older salaried employees and retirees.* Ford is offering buy-outs for both older salaried employees and retirees. I don't know how many are taking it. All I know is that I'm still waiting for my offer.... and based on my "guesses" of the scale of the buy-out, I'd be interested in taking it. I'll provide more info when I finally get the actual offer.Rob
Seriously depressing for shareholders. This is the first time in two or three years that I've seen a new item that was more than a minor blip on the trend. A management failure in the making- hard to see how it gets better.
Pension issues are pretty common through the US for older companies. They're the ones with legacy pension plans.... and pension returns have not kept pace with pension requirements. A lot of companies have moved away from defined benefit plans and into defined contribution plans... which place the risk on the beneficiary instead of the provider.Rob
This isn't an actual management miscue - or at least a management miscue in this administration...The fact is that the pension obligations were not estimated accurately (to no ones fault in management - probably an actuary somewhere) based on certain assumptions that were too rosy. If they would not of been dumping cash into the pension plan, we would be seeing an even greater deficit and larger hole to dig out of. The fact is the pension are not growing by new participants but through legacy pension holders (*cough* ROB)MjH
It was an intentional act on Ford's part. They decided that they'd fund more in cash, and rely less on market returns. Given the state of the bond market, I'd have to say they plan on dumping lots of cash into the plans from now on. My personal opinion is that they are not being conservative, but what do I know?http://articles.businessinsider.com/2012-02-28/strategy/3110...
Rob,This isn't a buyout like early retirement. As explained to Dad by Deloitte-Touche presentees, the feds have significant input into how the calculations are made. Ford can't just spit out a number. There are legal constraints on how fair value is determined. From what I saw, the offer was quite fair, and you'll probably like your number. Dad didn't feel he could manage his own money, so he stayed with the pension as is. I'm not sure why the deal caused so much angst among the retirees, except that its mere existance suggested that worse deals could be forced down your throats later. I would have taken it myself. I thought it was fair.A lot of people asked why Ford was making the deal, if it wasn't to their benefit. I think the answer is pretty plain. All of these pension funds are too constrained in their investment options. Right now, most of the financial vehicles they have access to are overpriced and have abnormally low yield. It's the same thing that weighs on all insurance companies, and Ford's pension fund is really a self-run annuity, afterall. Until interest rates normalize, all pension funds are going to continue to widen their unfunded gap.Retirees can match or do better without those investment constraints. Going forward, only higher rates through economic recovery can really fix the problem. Our government seems intent on doing nothing but argue, so that's not likely to happen for at least two years. Perhaps the next election can convince these clowns that we need governance. I wonder though...Peter
From what I saw, the offer was quite fair, and you'll probably like your number. -- PeterMy best guess is that the offer will be about 10X-12X my current annual pension.... which is about 4X my former annual income. That's for someone aged 57 at retirement, turning 60 next month, about 27 years of service.Overall, I'm looking at splitting the proceeds into:* Income stocks (primarily MLPs plus a scattering of others): ~30%* Sell options for income (Selling puts on reasonably priced growth companies, selling calls when put to..... a mix of companies from BRK-B to FB): ~30%* Invest in solidly growing companies (this will overlap the options related list, but also include companies like MKL): ~30%* Special situations (like F was. like CBB is. And others): 10%Rob
Regardless of WHO incurred the obligation, and WHEN it was incurred, it is the current management's responsibility to deal with it as they find it. Its hard for me to know if they are on strategy, or ducking and hopeful (hope is neither a plan nor a strategy) but the hint of not as good and intent on executing well management troubles my strategy greatly. My theory is Ford has really good management just now. This set of facts challenges that assumption.
Regardless of WHO incurred the obligation, and WHEN it was incurred, it is the current management's responsibility to deal with it as they find it. Its hard for me to know if they are on strategy, or ducking and hopeful...They're making a $5B 2013 contribution to the pension fund. That's not ducking the obligation or just hoping it goes away. Is it enough? Perhpas not. We can't know. The trend is up. Contributions in 2011 were $1.1B, in 2012 $3.4B and will climb to $5B in 2013. They aren't ignoring it. They have other needs for cash, particularly capex in Asia. The unfunded gap is a concern, but it's not a concern unique to Ford. I can't see much reason to call management's quality into question.
Thanks that helps. Still nervous though "Is it enough? Perhaps not." I have to imagine that 2013 - 2015 business story will help me understand if they can run a tight ship, produce enough value and allocate their value properly to solve this problem as well as keep their shareholders and customers happy. Until those all happen, I see lots of reason to question the quality of management, every day. I generally find its when I get complacent and STOP continuous evaluation of the quality of management that I get in trouble. On the sunny side, I was pretty impressed with the Consumer Reports evaluation of the FUSION models. Maybe I shouldn't consider this the first model year, but while the rating and comments look modest, its good for early years. Cause for hope.
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