Perils ahead in GM bankruptcy include liquidation, pension shortfall
We've got a new D-Day in the historic General Motors Corp. bankruptcy: If the automaker's good assets cannot be sold to a "New GM" by July 10, CEO Fritz Henderson told a bankruptcy judge in New York today, the company will be forced to begin liquidation proceedings.
Leave it to Henderson, nothing if not direct, to cut to the heart of GM's existential predicament. Is it yet another riff on the "shock-and-awe" strategy popularized last fall, which posited that a collapse of GM into bankruptcy or worse would prove cataclysmic for the national economy and, certainly, the Midwest. Yes, it is.
And, to a point, it's probably true -- emphasis on the "to a point" part. Team Obama may be intent on getting a speedy resolution to this silly little thing called the largest industrial bankruptcy in American history. And its Treasury Department has a penchant, at least in the Detroit Auto space, for setting tight deadlines and meeting them. But I'm not at all convinced the boss and his minions would let the General collapse into a heap of cut-rate auctions if the judge drags his feet.
Too much to lose. Too much political capital investment, even by the president. Too much danger to organized labor, the staying power of GM's pension fund and auto communities in the Heartland. Indeed, an emerging fear -- emerging, at least, in the public consciousness -- is the likelihood that GM is burning its pension fund on buy-outs and early retirements at a faster rate than anticipated, as the New York Times details in an important story story posted late today. The danger is that pension obligations will run ahead of GM's ability to pay them, meaning U.S. taxpayers would foot the difference through the entity known as the Pension Benefit Guaranty Corp.
"GM basically raided the pension plan, by having a lot of these severance benefits paid through it," Douglas J. Elliott, a fellow with the Brookings Institution who specializes in financial institutions and policy, told The Times. Active workers "could find that they donââ,¬â"¢t get their full pensions when they retire, because the plan has had to be terminated because of the payments to current retirees. There are definitely these intergenerational transfer issues with underfunded pensions."
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July 10th, or else ... is just the beginning for GM bankruptcy
Why anyone finds any of this surprising is beyond me. OF COURSE GM is in a difficult spot. Their business is worthless, supported only by payments made at the point of a gun. Left to voluntary circumstances, former GM facilities would either be working under new owners or in the process of sale (or abandonment) per bankruptcy as we once knew it.
This will not long work. Soon, and long before these pensioners are dead, the [pension] funds will be broke and the political winds will no longer blow money into their accounts. How long will it take? That is the only question. Not if, but when.
BR:
Point taken. Not sayin' who, but had a conversation recently with a seasoned senior exec in the DTW auto biz who predicted a GM bankruptcy and whoever is controlling the federal government -- i.e., Barack Obama or his successor -- will be bedeviled by GM's pension fund. His argument: That the fund's assumptions, as The Times story ably describes, do not account for the massive hits it is taking from buyouts and early retirements.
Meaning an no less than an American president -- as opposed to some anonymous bureuacrat -- likely would be faced with choosing between dumping the obligations squarely on American taxpayers, stressing the federal pension insurer and enraging Congress, or forcing a cram-down of lesser benefits on current and future pensioners. You make the call.
-- DCH
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