The Truth About Cars » Buyouts The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Sun, 13 Jul 2014 22:36:48 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » Buyouts With Liabilities Looming, GM And UAW Agree To Pension Buyouts. But What About The Workers? Tue, 27 Sep 2011 19:27:45 +0000

One of the legacy costs that GM was not able to reduce in the bailout was pension costs, a whopping $128b obligation as of the end of 2010. And though the plan is “only” underfunded by $10.8b at the end of June according to GM, Kenneth Hackel, president of CT Capital LLC (and author of two textbooks on valuing securities) recently told Bloomberg

The financial risk because of [GM's pension liability] is higher than people understand. The cold reality is if you used a conservative discount rate and you wanted to close out the plans, you would have to raise about $35 billion.

With GM’s market cap sagging into the low-$30b range (currently around $34b), the risk of pension liabilities growing larger than GM’s market capitalization is very real. And as lower interest rates and a weak stock market reduce pension fund returns, the obligations grow, in turn putting pressure on GM’s stock price. And it’s not like nobody saw this coming: a GAO report released in April 2010 issued dire warnings about the state of GM and Chrysler’s pension obligations. Now, according to the ace reporters at Reuters, GM and the UAW have hashed out a buyout deal giving workers the option of being bought out of their pensions. Which has us dying to know: what’s a UAW pension worth in cash?

Details like buyout amounts and the size of dent they’ll leave on “Fortress Balance Sheet” are not specified, as Reuters has only a negotiating letter to go on. The quote in question is posted in its entirety at the forum, and reads

The parties further discussed the possibility of amending the Plan to provide additional options for certain current retirees that would help GM manage its pension risk and
benefit such retirees that voluntarily agree to participate. To this end, the parties agreed that the National Parties may mutually agree during the term of this Agreement to
amend the Plan to add retirement options for some or all existing retirees that help GM reduce the volatility and risk related to the Plan and benefit existing retirees by providing
an additional voluntary option.

But the union dissidents who leaked the letter seem to be as angry about the possibility of a voluntary buyout offer as mistrustful of any agreement that could be reached without a vote by the union membership. In the words of Greg Shotwell,

the UAW colluded with the company to amend the plan after ratification to reduce the cost for GM… GM not only underfunded the pension, GM took lump sum bonuses and retirement incentives from the pension fund. Now GM and the UAW conspire to further drain the pension by offering retirees buyouts from the pension. Assuming that buyouts would come from the pension, a mass exodus for the buyout door would further erode the pension plan’s feasibility.

LaborNotes puts the paranoia into perspective

Gary Walkowicz, a bargaining committeeperson at Ford, said workers need to look for hidden concessions or loopholes not explained in the union’s “Highlights” handout.

At GM in 2009, for example, a seemingly harmless clause said the parties “will work together…to arrive at innovative ways to staff [small car] operations.” That language was used to justify slashing wages at a Michigan small-car plant, where 40 percent of the workforce was placed on permanent second-tier wages—without a vote.

Though a voluntary buyout seems like the most innocuous option, there are clearly downsides… and by not publicizing the agreement, the UAW is fanning the flames of dissent. In response to the union’s ubiquitous “Contract Highlights” pamphlets, the forum has created its own Contract Lowlights pamphlet [PDF], detailing the major grievances of mainstream UAW dissent. It can be easy to only look at a business from 40,000 feet, especially on the internet, so reading about the view from the ground level is definitely worth a few minutes of your time. Meanwhile, bailout-strengthened “Fortress Balance Sheet” and vague agreement notwithstanding, GM’s pension situation still looks to be stuck between a rock and a hard place.

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GM To UAW: Take This Job And Keep It Wed, 19 May 2010 21:11:30 +0000

When the music finally stopped at Old GM, the UAW’s VEBA fund was left holding a lot of IOUs. On those merits, the union’s benefit trust was given about 17.5 percent of the equity in the bailed-out and re-organized New GM. UAW leadership has always maintained that having its membership’s benefits staked on the company’s financial performance would not change its mission, and that VEBA’s representative on GM’s board, Steve Girsky, would operate free from union influence. And one hopes he would, considering he’s being paid well to advise CEO Ed Whitacre. But the tension between GM’s IPO sprint and the UAW’s non-VEBA interests never goes away, and the Wall Street Journal [sub] is reporting that the latest spat is over the old hobbyhorse of buyouts.

The UAW apparently thinks its 2006 again, and is “pressing” GM to bring back buyouts. These cash-for-quitting offers were the preferred method of getting rid of workers who had become too senior to afford, under such great GM CEOs as Rick Wagoner. And the union’s argument is rife with the attitudes of the bad, old days. Let’s not sully the subtleties of the WSJ’s take:

If GM doesn’t thin its ranks, scores of veteran factory workers in the next few years will find themselves without jobs or unemployment benefits.Laid-off factory workers once could remain on GM’s payroll for years receiving almost full pay and benefits, but now they can remain on the rolls no longer than two years before their company-paid unemployement benefits run out.

See? Before, laid-off workers could receive full pay and benefits for years, and now laid-off workers only receive benefits for years. And now, having cut costs all over, GM isn’t interested in paying experienced workers to learn. With production steadily expanding, GM has “restored or created 9,100 jobs” since bankruptcy, and under two-tier wage structures those new workers are being paid competitively. So the old guys who are making nearly twice as much should get their own private bailouts, at the expense of GM’s financial health (on which the larger union’s benefits depend)? Time Magazine knows what’s up, and chronicles the toxic effects of two-tier wages on the union, complete with quotes like “It destroys solidarity.”

But GM doesn’t want to go back to 2006, when it paid $3.8b to buyout 34,000 workers (do the math). With today’s announcement it has essentially ruled out any further buyouts. Now it’s up to the UAW to balance its own competing interests and do the right thing.

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Ford Brings Back Buyouts, Visteon Dumps Pensions on Public Mon, 21 Dec 2009 22:09:02 +0000 Deja vu... British workers protest Ford/Visteon shenanigans (courtesy:

It’s been a while since we’ve heard the word “buyout” echoing out of Detroit, as 2008 marked the year in which auto industry employees finally started to be fired like everyone else: without a hefty severance kiss-off. Ford, on the other hand, did not get a shot at free house-cleaning in bankruptcy court, so it’s bringing back buyouts. According to Market Watch, the Blue Oval is offering blue-collar employees a $50,000 lump sum payment and a $25,000 voucher for a new vehicle or another $20,000 lump sum, as well as six months of health insurance coverage. There’s even an extra $40k for workers of “a certain age.” But this being Detroit, employee benefits are either feast or famine. While Ford’s workers are being offered cash for their jobs, the former Ford parts division Visteon announced today that it is seeking to dump pensions for 21,000 retirees in bankruptcy, following Delphi into yet another stealthy yet popular form of indirect automaker bailout.

According to the Detroit News, the pension plans Visteon has asked a bankruptcy judge to drop have a combined shortfall of $544 million, and will result in at least $100m in benefit reductions. The Pension Benefit Guarantee Corporation has not yet approved the benefit dump, nor has Visteon’s bankruptcy judge, but the deal seems likely to go through. Visteon has already been allowed to drop health and life insurance benefits to 6,500 current and future retirees. By assuming these most recently-abandoned pensions, the PBGC would receive a $460 million general unsecured claim and 3.8 percent of Visteon’s new stock in bankruptcy.

But that’s small potatoes for a government safety net that is running a $21 billion deficit for 2008. That includes the assumption of $6.7 billion in Delphi benefits (covering some 70,000 individuals) that were abandoned by the GM spin-off earlier this year. Because both Visteon and Delphi were formerly divisions of Ford and GM respectively and are integral to the viability of their former parents, these pension dumpings are the ugliest, most stealthy elements of 2009′s auto industry bailout. No that you’ll ever see an OEM take responsibility for any of it. Shameful doesn’t even begin to describe it.

The image used in this story is from protests against Visteon UK’s equally shameful bankruptcy

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