S&P analyst Scott Sprinzen estimated GM’s pension liabilities at $23 billion to $26 billion, while its health care obligations are estimated at $50 billion, according to a Reuters report. GM had previously estimated its pension costs would triple in 2003 to $3 billion, as stock market declines increased its pension underfunding to $19.3 billion in 2002. This came in addition to news that GM would be lowering its future pension assumptions from a 10% rate of return to 9% (See GM Reduces Forecast, Pension Return Rates ).
“Barring a dramatic rebound in the value of its pension investment portfolio, GM will need to generate sufficient cash flow from operations for the next several years — possibly supplemented by asset sale proceeds — to continue reducing its massive benefits obligations in order to avoid a downgrade,” Sprinzen said in the Reuters report.
GM is not alone. S&P also said Ford Motor Company’s credit rating remained the most “immediately vulnerable” to a downgrade. Currently, the two automakers have credit ratings of “BBB,” S&P’s second-lowest investment grade.
Ford previously announced its US pension fund ended 2002 $7.3 billion underfunded, as the fund returned a negative 9.7% in 2002. Worldwide, Ford said its pension plans were underfunded by $14.5 billion in 2002. Ford also announced expectations for 2003 pension expenses to increase $270 million (See Ford Pension Ends 2002 Underfunded ).
Both companies recently went on the offensive in combating rising healthcare costs. In February, Ford increased the costs for medical care and prescription drugs for about 93,000 white-collar salaried workers and retirees and their families (See Ford Pushes Up Worker, Retiree Health Costs ). The move came after GM’s J anuary 1 action increasing monthly premiums for its 160,000 white-collar retirees by an average of $25 a month (See GM Driving Retiree Health Care Costs Higher ).
The other of Detroit’s “Big Three” automakers,DaimlerChrysler AG, saw its credit rating outlook remain at stable. S&P citied less reliance on the North American market and lower pension and healthcare obligations than either GM or Ford for the even bias.
« Sources: Fund Probe Uncovers Widespread Discount Problems