Can the automakers ever get their pension problems right?
Ford has already worked to end its pension plan - the company owes $74 billion on pensions and only has a market value of $40 billion. Last week General Motors joined the fray and announced the most drastic planned fix: the company would end its $26 billion pension plan for any salaried employees.
But a Moody's analyst says General Motors' pension fix may not even have made a dent in its financial picture.
GM said Friday that it will offer 42,000 retirees a lump-sum of cash if they agree to stop taking monthly benefits. For the rest of the 118,000 U.S. salaried retirees and spouses, GM will buy a group annuity that will make monthly payments starting in 2013.
GM's goal was to get that $26 billion of pensions off GM's books - where they made the company's balance sheet and earnings look weaker because pension costs rise and drop often and are hard to account for. The pensions are now the responsibility of Prudential Insurance Company of America, which will manage them. GM will pay Pru $3.5 billion to $4.5 billion in cash to take over the pensions.
There's only one problem: this plan doesn't help GM very much.
Moody's analyst Bruce Clark wrote today that the billions GM is paying to Pru essentially wipe out any money-saving benefits of the plan.
More importantly, he points out that the main issue with GM's pension plans is that GM's $26 billion pension plan for salaried workers is just a fraction of its overall pension problem. GM has, as the WSJ noted, "$71 billion in obligations to union-represented factory workers." GM is $10 billion short on its pension plan for those hourly workers, and $25 billion short on its pensions overall.
If GM offloads those hourly pensions to Prudential as the company did for salaried employees, it would affect GM's available cash significantly.
And how much does the whole elaborate Pru plan help GM cut from its pension obligations?
A total of $1 billion.
That leaves $24 billion the company still has to find somewhere.