GM bankrutcy inevitible and here is why

[Sstashmoo]

""The downside of good benefits. Ultimately, as American automakers market share shrank, those benefits became very costly. Ultimately, automakers ended up paying for far more retirees and far fewer workers.
GM, for instance, pays benefits to about 650,000 retirees and surviving family members while it has about 70,750 current employees; including both union and non-union workers.""


http://money.cnn.com/2009/05/27/auto...ce=yahoo_quote

One person working to supply benefits for ten people retired. That is insane.

Will bankruptcy ultimately save the auto giant, or is it just another phase of their death?

[Flanders]

""The downside of good benefits. Ultimately, as American automakers market share shrank, those benefits became very costly. Ultimately, automakers ended up paying for far more retirees and far fewer workers.
GM, for instance, pays benefits to about 650,000 retirees and surviving family members while it has about 70,750 current employees; including both union and non-union workers.""


http://money.cnn.com/2009/05/27/auto...ce=yahoo_quote

One person working to supply benefits for ten people retired. That is insane.

Will bankruptcy ultimately save the auto giant, or is it just another phase of their death?

Probably just delay the inevitable, IMO.

How can any vehicle manufacturer [[including those based in Germany, Italy, Japan, and SK) compete vs China and India?

Just like when Japan entered the US vehicle market soon after the Arab oil embargo, and got their foot in the door during a time when the domestics got caught with their collective pants down, the Chinese will be able to take advantage of the mostly increasingly dire economic straits that US "middle-class" consumers are in, and sell their lower priced vehicles to them, rapidly gaining market share while improving quality.

Would not surprise me to see Wal*Mart dealerships selling new Chinese and maybe Indian vehicles eventually built next to their retail stores. Maybe the vehicles will be so cheap that they can be thrown out like an old mattress, and US consumers can buy a replacement after grocery shopping.

I remember working as a temp in the early 80s at the tech center for peanuts,certainly not enough to even afford food, clothing, an apartment and vehicle, but there were people who never set foot inside those buildings and having not performed a minute of work for them, yet collecting thousands per month along with health insurance from their deceased spouse' pension payments and retirement benefits.

[Mikeg]

The automakers were supposedly paying into the retirement fund for years while they were not. That constitutes fraud in my book. The retirees AND their spouses who contributed to the US automakers for years are now getting the shaft.

Things are bad enough, we don't need baseless accusations of fraud being bandied about.

On Dec.31, 2007, GM's hourly plus salaried pension plans were fully funded to the tune of 124% of their obligations. A year later, after the stock market tumbled, they were 87% funded due to the decline in value of the stock in their pension plan investment portfolios [source]. There was no fraud involved, just the normal risk a company incurs with a defined benefit pension plan.

Where GM, Ford and Chrysler have huge unfunded liabilities is with their contractural obligations to provide health care for their union retirees - and the retirees/spouses have never had to contribute much out of pocket for that benefit. The VEBA that was negotiated in the 2007 UAW national contract would have eventually removed that obligation and risk from the automaker's books but last fall's financial meltdown, sales slump and the death spiral into the uncharted seas of Chapter 11 have prevented that from happening yet.

[turkeycall]

Quote: "The retirees AND their spouses who contributed to the US automakers for years are now getting the shaft."

You are correct, Slimshady. When wages and benefits are the topic during contract negotiations, the active workers almost always "give back" a certain portion of their new wages and cost-of-living allowances which are to be put into the pension fund.

There have, no doubt, been ocassions when employers have raided the funds for purposes other than what they were intended. Keep in mind that pension funds are money which would have been paid to employees in their regular paychecks but were earmarked for pension funding.

You are correct. Retirees and their spouses paid it forward out of their own pockets.

[mjs]

And Union members wonder why others accuse them of an entitlement attitude. While GM workers may be facing a 13% loss in their pension, others have been wiped out by far greater amounts. The Unions won't accept defined contribution, but now whine about the risks of defined benefits. Its the only two choices that exist! You got the better deal. You are getting more than the rest of us.

Its nicknamed Generous Motors for a reason. Mikeg told you the fund was at 124%. You want GM to print money? You want them to provide no down years like Madoff did? The company is on the verge of bankruptcy and you're not and you think you're the worst off? Are you worse off than all the people that lost their jobs and didn't get a car voucher, college reimbursement, or a big check? I'm sorry is what the rest of us get. What do workers of a bankrupt company feel they are owed? If you think you're being screwed so badly, go start your own business and then see what its really like to carry a company.

[Det_ard]

The bankruptcy lightens GM's debt load and trims an overpopulated dealer body. Good things for GM.

GM axes several brands and reduces product offerings. Necessary medicine.

Operational costs are pared slightly but hourly costs and benefits are still way above market rates and work rules are only slightly revised.

GM's in a better overall position but still has most of the same problems it had pre-bankruptcy. Bankruptcy was GM's chance to truly start over but the deck's been stacked against them for political reasons. Expect a second bankruptcy in 2 - 3.5 years [[post-election?).

[Flanders]

The bankruptcy lightens GM's debt load and trims an overpopulated dealer body. Good things for GM.

GM axes several brands and reduces product offerings. Necessary medicine.

Operational costs are pared slightly but hourly costs and benefits are still way above market rates and work rules are only slightly revised.

GM's in a better overall position but still has most of the same problems it had pre-bankruptcy. Bankruptcy was GM's chance to truly start over but the deck's been stacked against them for political reasons. Expect a second bankruptcy in 2 - 3.5 years [[post-election?).

US market rates as set by whom?

Japan?
Germany?
Korea?

Even their "market rates" are too high considering the global dirt floor wage level and unregulated working conditions eagerly anticipated and sought after by corporate capitalists, Republicans, and wealthy conservatives. As concessions are won, more will be demanded, and onward, in their increasingly successful goal to crush US organized labor.

[Det_ard]

US market rates as set by whom?

Japan?
Germany?
Korea?

Even their "market rates" are too high considering the global dirt floor wage level and unregulated working conditions eagerly anticipated and sought after by corporate capitalists, Republicans, and wealthy conservatives. As concessions are won, more will be demanded, and onward, in their increasingly successful goal to crush US organized labor.

Spare me the doomsday diatribe. Market rates are set by the market for skilled or unskilled labor, as the case may be. Overpay and lose your ability to compete. Then you go bankrupt for real and nobody's getting paid, union-scale or otherwise.

If you give a damn about this city and this region you'd hope that the auto companies are able to operate with a competitive cost structure. Back in the glory days [[mid-century) the Big 3 had net profit margins in the mid-teens. In the 90's and 00's GM's goal, which they never acheived, was to earn a 5% profit margin. Which benefits us more, high profits or no profits?

[ccbatson]

True bankruptcy, without a government takeover, could allow GM to resurface. If the Government takes it over, as they appear to be want to do, what emerges will be something very different than GM....and likely a disaster that will never die [[until the government gives it up...which would be unprecedented). A zombie socialist automaker with steadily declining quality [[absent real market incentives) and increasing costs [[taken without consent from taxpayers).....LEAVE BUSINESS ALONE OBAMA.

[Mikeg]

My father worked for GM as an engineer for 35 years. He was forced into early retirement when GM sold his division and he got a reduced pension. Now, in his eighties, they are cutting his benefits. Tell me again about all the cars, college reimbursement, and other crap he supposedly got? He got a clock. The deal was, work for GM and get a pension. He could have worked elsewhere but chose GM because of their benefits package. Now they are reneging on the deal they made with him.

I worked for GM as a salaried engineer for 31 years and I too got a clock - but it was in recognition of 25 years of service, not retirement. Six years later I was given an early retirement offer and took a mutually-satisfactory, reduced pension. My non-compensation benefits in retirement - as while I was working - have continued to change. The non-compensation salaried employee and retiree benefits were never static and never promised in writing. Of course, over the past 17 years, the non-compensation benefit changes have been for the worse.

The only deal was "work for GM and get a defined benefit pension that is guaranteed by the Pension Benefit Guarantee Corporation". The PBGC is a Federal Government Sponsored Entity [[like Fannie Mae) that only guarantees you will continue to collect a pension if your former employer terminates their defined benefit pension plan [[as in the case of bankruptcy). The PBGC does not guarantee that you will continue to collect the same pension payment [[each year there is a sliding cap based on a retiree's age and if your terminated pension payment was higher than the cap for your age, too bad). The PBGC does not guarantee any other retiree benefits.

Where is it written that because they choose to work for a certain employer, workers are entitled to live comfortably in retirement on the "promises" of that employer and the Federal Government? The continued collection of a defined benefit pension is only guaranteed by the Federal Government, the same fine folks that are "promising" my future Social Security Benefits - which they have already reduced before I've even become old enough to collect them.

The bottom line has always been that a worker should never rely on anyone other than themselves to provide their future retirement income. If the "promised" pension and SS benefits come through, so much the better. Most workers covered under a defined benefit pension plan only glanced at the annual ERISA report they received from their employer and never bothered to read the fine print. Because they didn't read the fine print and chose to believe in "promises" that could not be kept, many found it easier to spend and accumulate material possessions than to save a portion of their compensation in a passbook savings account or a defined contribution retirement account such as an IRA or 401[[k).

Now it is those very same folks [[and their children) who are claiming that they're getting the shaft and that they are entitled to more than they were ever guaranteed. I think they are going to find that the "empathy well" has dried up and that the "entitlement pool" was only a mirage.

[Det_ard]

I worked for GM as a salaried engineer for 31 years and I too got a clock - but it was in recognition of 25 years of service, not retirement. Six years later I was given an early retirement offer and took a mutually-satisfactory, reduced pension. My non-compensation benefits in retirement - as while I was working - have continued to change. The non-compensation salaried employee and retiree benefits were never static and never promised in writing. Of course, over the past 17 years, the non-compensation benefit changes have been for the worse.

The only deal was "work for GM and get a defined benefit pension that is guaranteed by the Pension Benefit Guarantee Corporation". The PBGC is a Federal Government Sponsored Entity [[like Fannie Mae) that only guarantees you will continue to collect a pension if your former employer terminates their defined benefit pension plan [[as in the case of bankruptcy). The PBGC does not guarantee that you will continue to collect the same pension payment [[each year there is a sliding cap based on a retiree's age and if your terminated pension payment was higher than the cap for your age, too bad). The PBGC does not guarantee any other retiree benefits.

Where is it written that because they choose to work for a certain employer, workers are entitled to live comfortably in retirement on the "promises" of that employer and the Federal Government? The continued collection of a defined benefit pension is only guaranteed by the Federal Government, the same fine folks that are "promising" my future Social Security Benefits - which they have already reduced before I've even become old enough to collect them.

The bottom line has always been that a worker should never rely on anyone other than themselves to provide their future retirement income. If the "promised" pension and SS benefits come through, so much the better. Most workers covered under a defined benefit pension plan only glanced at the annual ERISA report they received from their employer and never bothered to read the fine print. Because they didn't read the fine print and chose to believe in "promises" that could not be kept, many found it easier to spend and accumulate material possessions than to save a portion of their compensation in a passbook savings account or a defined contribution retirement account such as an IRA or 401[[k).

Now it is those very same folks [[and their children) who are claiming that they're getting the shaft and that they are entitled to more than they were ever guaranteed. I think they are going to find that the "empathy well" has dried up and that the "entitlement pool" was only a mirage.

Well said.

A relative with a similar career at GM retired with a 401k that was worth north of $2 million last year. Relying on the government or a corporation for lifetime support is a pretty risky strategy, especially when you can provide nicely for yourself via tax-deferred investments.

[oladub]

P.J. O'Rourke has a completely different take on the demise of GM. His thought is that the sensibility of Americans toward cars has changed. No longer is a car the symbol of freedom and romance to most Americans. It has, instead, become an appliance and the Japanese make better cheaper appliances.

iStockphoto

The End of the Affair

The fate of Detroit isn’t a matter of economics. It’s a tragic romance, whose magic was killed by bureaucrats, bad taste and busybodies. P.J. O’Rourke on why Americans fell out of love with the automobile.

last two paragraphs-

"Among certain youths—often first-generation Americans—there remains a vestigial fondness for Chevelle low-riders or Honda “tuners.� The pointy-headed busybodies have yet to enfold these youngsters in the iron-clad conformity of cultural diversity’s embrace. Soon the kids will be expressing their creative energy in a more constructive way, planting bok choy in community gardens and decorating homeless shelters with murals of Che.

I myself have something old-school under a tarp in the basement garage. I bet when my will has been probated, some child of mine will yank the dust cover and use the proceeds of the eBay sale to buy a mountain bike. There are those of us who have had the good fortune to meet with strength and beauty, with majestic force in which we were willing to trust our lives. Then a day comes, that strength and beauty fails, and a man does what a man has to do. I’m going downstairs to put a bullet in a V-8."

[Mikeg]

So according to you, you cannot depend on SS, you cannot depend on your pension, you need to "depend on your self"? What does that mean? On your 401k?

Yes, yes and yes.

SS has already moved the goalposts for full benefits from 65 to 67 years of age, so why should I trust them to not make any more changes before I decide to start drawing SS? Based on experience, my conclusion is that no one should ever depend on the Social Security Administration's estimate of your "promised" future benefits.

The value of a company's defined benefit pension plan fluctuates with the ups and downs of the stock market and the company bears the risk of making up any shortfalls that will prevent the plan from meeting its pension payment obligations. A company's ability to make their regular required contributions to their defined benefit pension plan and to also make up any shortfalls is totally dependent on their ability to generate revenue and operate as a viable business. Prior to the creation of the PBGC, if a company went bankrupt, retirees' pensions were totally at risk. Now, if you have a defined benefit pension, the only thing you can depend on is that if your plan is ever terminated, the Federal Government [[PBGC) will assume the liabilities of the terminated pension plan and continue making some level of payments to the company's existing and future retirees.

The PBCG is a Government Sponsored Entity [[GSE) just like Fannie Mae and if it assumes too many underfunded terminated pension plans, eventually it will have to be bailed out by Congress, just like Fannie Mae has repeatedly been. How many more GSE bailouts do you think the electorate will tolerate? Therefore, no one should ever depend on the "promise" of a company's estimate of your monthly check from a defined benefit pension plan, because it can be terminated in a "New York minute". All it takes is the agreement of a Federal Bankruptcy judge and the pension plan liability gets transferred over to a GSE that might have to ask for a taxpayer bailout in order to keep sending any checks at all.

So if you cannot plan and depend on a level of future retirement income from either SS or your defined pension plan, who can you depend on? The only one you can depend on is yourself and it doesn't matter how much you save and where you put it, only a fool would rely strictly on the "promise" of a monthly retirement income level from a defined benefit pension and SS.

Of course, it is much easier to ignore hard truths and personal responsibility and then bitch and moan about "getting the shaft" when things happen that are outside of your control.

[ccbatson]

Social security can't be relied upon. When [[not if) it is bankrupt, it will need to be funded at lower levels of benefits to the recipients via taxes/inflation/both. Reliance upon the fruits of one's own labor combined with a successful grass roots campaign to reverse socialism are the best, nay, the only hope for prosperity.