Message Font: Serif | Sans-Serif
No. of Recommendations: 2
More At:

GM's Pension Peril
This week General Motors issues $13 billion in debt in order to stem the bleeding of its pension program. In aggregate, the companies in the S&P 500 have a pension underfunding of more than $239 billion, an amount of liability that is neither represented on their income nor their balance statements. GM's solution effectively robs its future to make things better today. Some better regulations are desperately needed.

By Bill Mann (TMF Otter)
June 25, 2003

This past week General Motors (NYSE: GM) took on $13 billion in debt in a giant offering. Seems like a pretty good thing to do, what with interest rates as low as they are. Several companies have done the smart thing over the last year by replacing their older high-cost debt with notes prices at today's prevailing rates. To no small extent, that's the kind of activity the Federal Reserve is seeking to promote with ever lower federal funds rates. Companies borrow more, or manage to lower their interest payments, they spend some of the proceeds on capital projects, which require staffing, and around and around we go.

GM's debt offering, on the other hand, is largely earmarked for a completely different purpose -- more than $10 billion of the new debt will be used to shore up its dramatically underfunded employee pension plan. Just how underfunded is it? According to a comprehensive study by UBS (NYSE: UBS), GM had a $25 billion deficit at year-end 2002. Just this past week, Moody's (NYSE: MCO) lowered its debt ratings on GM due, in part, to its pension liabilities...
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.