How Will GM Manage This $71 Billion Obligation?


The $71 billion General Motors (NYSE:GM) owes to its pension fund will be hanging over the automaker for at least several years more. According to a report by Reuters, the Vice Chairman of GM doesn’t see a discussion coming with the United Auto Workers on the topic until the next big contract negotiations, set for 2015. The $71 billion obligation, much greater in value than General Motors as a whole, continues to trouble investors.

Steve Girsky, Vice Chairman of General Motors, told Reuters that talks over the pension obligation were so important and complex it “would probably have to occur around bargaining” with the UAW union. Currently, both sides are letting the matter go until 2015, though they have agreed the pension obligation — $71 billion at last check — should be addressed for the sake of the automaker’s future.

The topic of pension obligations continues to be a sore spot for GM as the automaker tries to shed the negative associations of the government bailout in early 2009. According to a report by Reuters on September 11, the U.S. auto task force advised GM to not fund the pension of certain employees of the automaker’s past ventures. Government officials believed GM could not afford to pay every employee at that time and survive.

“We concluded it was not commercially reasonable,” the U.S. auto task force former head, Steve Rattner, told Reuters, referring to GM funding every employee pension. When GM and other U.S. automakers were struggling to stay afloat during the financial crisis, they said the obligations to the unions were adding thousands of dollars to the price of cars, a disadvantage its foreign rivals were exploiting. Union officials reminded GM it was the cost of doing business in the United States.

GM’s return to sound financial health has been a priority for company executives since the bankruptcy and bailout. On September 23, Moody’s Investor Services upgraded GM’s rating to “investment grade” for the first time since 2005. The upgrade followed GM’s purchase of retiree healthcare trust obligations. To keep its new rating for the long term, GM will have to manage its $71 billion pension fund with care. Though it’s not exactly clear how the company will do so, it seems the first step is to put it off for a while.

Don’t Miss: What Happens to a Tesla Car When it Crashes?