Posted on 03/22/2005 2:49:46 PM PST by quidnunc
It's hard to believe that the bond rating of General Motors may soon fall to junk, but it's true. Last week, GM announced an expected loss of $850 million, about $1.50 a share, for the first three months of 2005. The company slashed its profit forecast by $2 billion for the year.
It's troubling news, obviously, for GM's shareholders and employees. But if more Americans paid attention to the troubles facing General Motors, they might grasp the urgency of America's Social Security crisis. General Motors is going bankrupt for the same reason Social Security is going under: unfunded liabilities in the form of promised benefits to retirees.
Over the decades, union leaders have won such generous pension and healthcare benefits for GM employees that today GM is the world's largest private consumer of health care, covering the medical costs of more than 1 million people. Health care represents more than $1,000 worth of cost, on average, in every vehicle General Motors produces, its chairman, Richard Wagoner, has said.
GM spends more on health care than on steel. The health-care costs — about $5.5 billion a year and growing — are fixed. GM's unfunded health-care obligations amount to $57 billion. GM also holds America's largest private pension obligation. The company estimates its total future American pension costs at $87 billion.
The company's total market valuation stood last week at $16.39 billion. General Motors was once the leading car manufacturer in the world. Today, it's a pension fund and a health maintenance organization with a relatively small car-making operation on the side.
-snip-
(Excerpt) Read more at nysun.com ...
--the UAW better wake up ,also---
The UAW had their glory days - now it's time to pay the piper.
Why do you say GM is going bankrupt? The article doesn't support that statement.
When are the GM-UAW contracts up? 2007?
Always look for the union label... then buy something without it.
Why should they? GM made the genius decision to cut a bunch of non-union labor... So that makes it pretty apparent that its the non-union labor is whats wrong with GM.
My next car will probably be an American Honda.
"Junk" doesn't always potend bankruptcy. Some great companies have been financied by junk bonds. That said, getting downgraded toward junk status, instead of moving in the other direction, is not good.
GM's pension obligation is $3 BILLION overfunded. They don't need to make a contribution through the end of the decade.
This article is alarmist "global warming" type stuff.
From the excerpt:
General Motors is going bankrupt for the same reason Social Security is going under: unfunded liabilities in the form of promised benefits to retirees
I agree that GM is unlikely to go bankrupt. I think they have some $30e9 in cash on hand.
GM was praying for Kerry to start National Healthcare to bail them out.
Looks like that strategy didn't work out...so they're toast, unless they can win major concessions on their benefit obligations, which is undoubtably what the publicity blitz is all about.
Very sad. Reminds me of the Twentieth Century Motor Company in 'Atlas Shrugged'.
I fear the next thing is a taxpayer bailout, like Chrysler in the early '80's - 'too big to fail' theory.
My daddy used to say..."Stay in school, study hard, work hard, and one day you will make more money than General Motors." Guess he was right.
From the second paragraph:
General Motors is going bankrupt for the same reason Social Security is going under: unfunded liabilities in the form of promised benefits to retirees.
"$30e9 in cash on hand"
Is that more or less than $E83:B times $2.98? I am terrible at math.
p.s. It's getting late and I'm tired. Take no offense.
Union Goon Alert (UAW cowards threaten worker)
http://www.freerepublic.com/focus/f-news/1368170/posts
with crap like this I have less and less sympathy for them.
It means about $30 billion. "e9" is scientific notation for "times 10 to the 9th power"; 10 to the 9th power is 1 billion.
When bonds come due, they're not going to be paid out with free test drives.
They're junk status because the ability of GM to actually redeem the bonds is becoming less and less credible.
If GM wants, they can issue more bonds, but they'd be laughably subprime.
It may be premature to call GM almost bankrupt. A lot of things the company can do and will try in the meantime. However schwab had negative credit ratings out fot both GM and Ford. GM stock is an outright sell.
My last company, Lockneed Martin went through a period wher pensions were reformed and health care costs began to be sharred between employee and company. This is the future for GM. It was not fun, and people on medicare have a better program for now. (With the average family paying half their medical costs.) What this article says is the chickens will one day come home to roost.
In the meantime, I will let my GM bonds cash out and purchase some healthcare company bonds.
Watch the coming bankruptcy of GM to bust the pensions and health care costs.
Seriously though, unions set the pace for a lot of other industries. It's just that it got taken over by thugs, sorry to say. It was the union that put a stop to workers being forced to work over 40 hrs without o/t. They have done a lot of good over the yrs but now they are corrupt!
I guess what it boils down to is this: Bond rating houses are not going to call "junk" on GM unless there's a serious reason to believe they have take on sizable risk. The rating could improve, but if the crux of the issue is healthcare subsidies, they're in trouble, because as far as I can tell, they can't make those go away.
The auto industry took a calculated gamble by shifting their business models from making profits on cars to making profits on their financing divisions. Automakers are essentially loan offices that sell cars, not autosellers who give loans.
It's getting late? It's only a little ofter 6.
the UAW does not care.
Remember Easter Airlines? Their union talked the airline tough into oblivion.
Does the UAW think they will be better off working for a non-USA corporation?
By 2018, the Social Security system will be in deficit, paying more in benefits than it collects in taxes. The "trust fund" will run out of assets in 2042 and face increasing shortfalls.
The article fails to point out that the last of the "baby boomers" i.e., those born in 1964, will be 100 years old in 2042..
Those that are still alive, that is..
While social security is in dire need of restructure, and protections from congressional financial shenanigans, ( virtual embezzlement ) such mis-representation and scare tactics are inexcusable..
"It means about $30 billion. "e9" is scientific notation for "times 10 to the 9th power"; 10 to the 9th power is 1 billion."
Well, color me informed!! I thought I was just being funny because someone had a typo. See! A math-challenged senior citizen CAN learn something new.
Thanks, MS
You can probably apply that to several large airlines as well.
Filing for Chapter 11 and emerging from a reorganization might just be what the doctor ordered for GM.
I am salaried.
MY company has AN ENTIRE YEARS revenue, in the bank, cash.
And I am an employee-owner.
No union.
"Always look for the union label... then buy something without it."
You prefer "MADE IN CHINA"?
You, um, studied new math, right?
"It's getting late? It's only a little ofter 6."
If you've been up since 2 a.m., it's late...believe me.
Something doesn't look right here... GM has 324,000 employees... so this works out to be almost $17,000/year/employee in Health Care costs.
I work at a manufacturing company... we are working to drive down our health care costs at our division because we are WELL ABOVE the national average in heath care cost/employee at around $7,000/employee. National average IIRC is around $4,500/employee.
All this, and they don't have a single car that everyone is talking about.
The coming health care crisis is going to hit more than just the uninsured, the poorly-run companies are going to see problems first. In five or ten years, the rest of the system goes into full collapse.
I'm not claiming to be a math whiz, but I'd check your numbers.
Here : "General Motors is going bankrupt for the same reason Social Security is going under: unfunded liabilities in the form of promised benefits to retirees"
That number includes retiree benefits, which is what's really killing GM.
They're talking about the new Ponticac G6, but what they're saying is that it has been a flop.
Let us not forget that southern Ontario has subsidized the auto sector to a highly valued position: southern Ontario now out-produces Michigan in auto production. The cruel irony is that as their dependence on American companies for jobs grow, the shrill anti-Americanism also grows.
GM is worth 27 billion...they have outstanding debt well in excess of 100 billion.
>>>>GM's pension obligation is $3 BILLION overfunded. They don't need to make a contribution through the end of the decade.
It was the union that put a stop to workers being forced to work over 40 hrs without o/t. They have done a lot of good over the yrs but now they are corrupt!Wrong on the 40-hour week. (Right on corrupt.)
A standard 40hour week is a union creation that defies the historical reality of automotive production. The automotive business is both cyclical and seasonal. It was the New Deal that imposed 30, 35, 40-hour weeks upon the industry, which, in turn, created this idea of "over time," which never before existed. The industry tried and tried to explain to the morons of the "brain trust" that fewer hours in November plus extra hours in April added up to the same as even hours all year long.
Besides, auto factory workers regularly got extra pay for extra work, for that meant $$ for the factory. "Piece-work," which the New Deal outlawed, was an excellent moderator of work flow and wages, and it was the best way for smaller manufacturers to compete with the Big Three, which otherwise creamed the rest on scale and productivity. When FDR and the UAW imposed regularity on auto employment, they merely assured that there would be fewer automobile producers, and, thus, fewer overall workers.
Yes, unions have brought benefits to workers. But they've taken away more money from the workplace in general than they've given to those workers they represent.
Yup the UAW has become what they organized to prevent
Contract is up in 2007
I only have a little over 2 years left and I am laid off right now myself
:>)
GM has a fleet of the same car...some more $ and some less $, but all the same with a different name.
If they come out with a 40 mpg SUV with 2/3 the power of a Yukon and a price in the low 20's and a warranty in the 100,000 range, then they'll move more vehicles than Japan, Korea, and Germany combined.
Who would have thought that national health care would become a competitive advantage?
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