GM CFO Dan Anmann wants the maker to focus on its "core business."
Taking a cue from its cross-town rival, General Motors will offer lump-sum buyouts to 42,000 salaried retirees while transferring the pension program of the rest of its 118,000 white-collar retirees to Prudential Insurance.
Those moves should reduce GM’s pension liabilities by about $26 billion without reducing benefits, Chief Financial Officer Dan Ammann explained during a conference call with analysts and reports. And it could serve as a model for a similar program aimed at reducing GM’s even bigger blue-collar pension liabilities which remain significantly underfunded.
“We’re going to continue to look for opportunities down the road,” said the GM CFO, though he declined to discuss whether the prospect of major changes to the pension program of hourly workers has yet been raised with the United Auto Workers Union.
GM’s Friday announcement came less than a day after Ford Motor Co. revealed it will offer buyouts to 98,000 of its own salaried and white-collar retirees. Ford has no plans to offload management of the remaining pension program, however.
(For more on the Ford pension buy-out, Click Here.)
Like Ford, GM does not yet have an indication of how many workers will actually take the lump-sum offer. Should any of those among the 42,000 decline they could continue with the existing program – though GM will no longer operate that pension plan. The maker will “over-fund” it to the tune of 110% of existing liabilities once it is off the books and under the management of Prudential.
As with both Chrysler and Ford, GM has been struggling to find ways to cut the costs associated with a major pension program that now covers 118,000 white-collar retirees and survivors. The program currently has liabilities of $37 billion, with only $33 billion in assets. But when the U.S. blue-collar retirement program is added in, liabilities jump to $107 billion. And, overall, the programs are $13 billion underfunded.
GM has another $27 billion in pension liabilities outside the U.S., with only $17 billion in assets.
These multi-billion-dollar shortfalls have contributed to concerns about the maker’s long-term financial viability, and they are a major reason why ratings firms have yet to restore GM’s investment grade rating even after it was able to wipe out much of its debt through its 2009 bankruptcy.
Moving the pension to Prudential means “We’ll never have to address it again,” stressed Ammann, adding that GM’s goal is to “focus on our core business and get out of a non-core business.”
Those eligible for the buyouts retired from the automaker sometime between Oct. 1, 1997, and before Dec. 1, 2011. They will have until July 20th to decide whether to opt in.
The maker previously announced plans to freeze its pension program for active salaried employees. That means they will accrue no more benefits after the end of this coming September. But it plans to expand contributions to workers’ 401(k) plans and also give them an additional week of vacation.
As for union workers, CFO Ammann was consciously vague when asked about whether the newly-announced buy-outs will serve as a model for a similar blue-collar program, though he offered several hints that it might follow. He suggested that the subject of pensions is a major, ongoing topic of discussion with the UAW, but also indicated that such a dramatic transformation might require formal negotiations to conclude. It is unclear if that would mean waiting until the current union contract expires in 2015 or whether a deal – if offered — could be worked out sooner.