The report concludes that deficits have been understated by $40 billion because automakers have assumed no increase in future pension benefits, according to the Financial Times. There is, of course, nothing incorrect in the assumptions per se. However, the Goldman Sachs report says that airlines, steel, and telecommunications companies generally assume a 4% annual rise in benefits, while benefits for auto industry pensioners have increased by an annual 5.1% over the past three decades.
The report says that assuming a 3.5% annual increase in benefits would increase pension obligations by $22 billion at General Motors, $9 billion at Ford, $4 billion at car parts supplier Delphi, and 5 billion euros at Germany’s DaimlerChrysler.
Gary Lapidus, auto analyst at Goldman and author of the report, said the increase would wipe 20% to 70% from the fair value of the shares if recognized by investors. “The liabilities are far larger than has been disclosed,” he said, according to the Financial Times.
The FT report quotes General Motors as dismissing the report as “sensationalist and lopsided.” GM went on to state that the Goldman Sachs projections were “grossly inflated” because pensioners typically received much lower raises than current workers, according to the FT.