[From the diaries by susanhu. Fascinating and troubling, Joe.] In addition to death and taxes, people growing up on the Saginaw Bay, have to face two other stark realities in life. One is that the area’s economic life blood is tied to the success of General Motors. The other is that, at some point in life, some time must be spent as a sport fisherman.
My stepfather is a master angler. He pulls perch and walleye from the Saginaw Bay at an alarming rate. But he has complained to me recently that the Bay is too crowded. I found this odd, since the population of my hometown has decreased from about 60,000 in the 1960s to somewhere around 30,000 today, this loss being almost directly related to the decline in the automobile industry.
“It’s all the shop rats,” my stepfather told me, referring to G.M. retirees. “They retire, get their boats and spend all their time on the Bay.”
I read a story in today’s New York Times that makes me think that some of those G.M. retirees might be fishing with a little more earnestness in the near future.
According to the Times, G.M.’s pension plan might be less than healthy:
The federal government contends that General Motors’ pension fund is $31 billion short of what it owes its work force, according to closely held government data, a figure in stark contrast to G.M.’s assurances that its pension plans are “fully funded.”
– snip –
[The $31 billion shortfall] was calculated by the Pension Benefit Guaranty Corporation, the federal agency whose job it is to insure employee pensions if a company fails to meet its obligations.
What is the Pension Benefit Guaranty Corporation (PBGC), you ask? You remember them. They are the taxpayer guaranteed government insurance agency that pays the pension obligations of bankrupt corporations. And while the PBGC may be a nice place for corporate obligations to be discharged, it is no great deal for the pensioners. The PBGC does not guarantee all the benefits lost by pensioners, so retirees can take some of the loss on the chin.
You might remember the PBGC from its most recent appearance on the national scene:
But the disparity of such estimates has grown increasingly important as some large companies like United Airlines have gone bankrupt, leaving the [PBGC], which took over United’s pension plan, with far greater unfunded obligations that previously thought.
Not to worry. G.M. would have you believe that this rather gruesome outlook is all a figment of some alarmists accountant’s imagination:
The discrepancy between the government’s and the company’s figures is the result of different assumptions made about how long G.M. would keep operating the pension. The federal guarantor made its estimate on what is called a termination basis – it measured the amount that G.M. would owe its workers if it were to terminate its pension plans immediately. G.M.’s calculation that its pension plan is fully funded assumes that the fund will keep going, rather than being ended.
Since 1994, companies with weak pension funds have been required by law to calculate the value of their pension funds on a termination basis and to send the information to the pension guaranty agency.
– snip –
In response to questions about the [PBGC’s] calculation, G.M. released a statement saying it considered it “unrealistic and not indicative of G.M.’s ability to provide future retirement benefits.”
Whew! I was starting to worry. So this will only be a problem if G.M. was going to consider bankruptcy. I mean, fuck, most individuals can’t even consider bankruptcy anymore, right? And G.M. They are never going under.
While General Motors is not in the same situation as United Airlines, it has been struggling on many fronts, losing $1.4 billion and exhausting more than $3 billion of cash in the first half of this year. Employee health care costs nearly $6 billion a year, more that steel, and that figure continues to rise. G.M.’s bond ratings have been cut to subinvestment grade, or junk, by the leading credit rating services, limiting its flexibility in raising cash.
Then there is trouble with Delphi, a struggling parts supplier that used to be a unit of G.M. and has said it will file for bankruptcy protection by the middle of this month unless it receives a multi-billion dollar bailout from G.M. and the United Auto Workers union.
Ah Delphi. For those of you who do not live in Michigan, and do not follow the business world with the astute attention to detail of a Bonddad, let me give you the local take on Delphi. Delphi is basically a big chunk of G.M. The chunk that made a whole lot of parts for automobiles. It was spun off in 1999 in what many locals view as a union busting effort. Delphi workers do the same jobs that G.M. workers used to do, only at lower rates, and with fewer benefits. And, many in the Delphi plants would tell you, at a far lower quality. Delphi was a G.M. exercise in externalization of costs. If you don’t know about externalization of costs, check out this movie, or for readers, the book.
Anyway, Delphi is about to go belly up. Unless G.M. does a major bailout. So either we stop making parts here once Delphi is gone, or G.M. takes on obligations it cannot really afford. In any event, things just aren’t looking that rosy in the auto industry. Bankruptcy is surely in the offing for Delphi, absent some outside intervention. Is it such a stretch to think it is in the offing for Delphi’s parent company?
On Monday, Fitch Ratings downgraded G.M. further, saying in a statement that among other factors it had “become increasingly concerned with the near-term financial costs that could fall on G.M. as part of Delphi’s restructuring.”
Late this week, the Senate is expected to debate a broad pension bill that would require companies with junk-level credit ratings to start disclosing their pension values on a termination basis. The bill, which has bipartisan support, is part of an effort to tighten the pension funding rules, in hopes of preventing more big failures like the one at United.
Well, I don’t think new accounting rules are going to help avert a United-like collapse at G.M. What they would do, is force G.M.’s $31 billion dollar pension shortfall into the light. It seems to me that debating the amount of G.M.’s pension shortfall is kind of like debating the reality of global warming. You can debate all you want. But at some point in time, someone is going to pay the piper. Or in this case, perhaps, the piper will be partially paid, with the guarantees of the American taxpayer, and a part of the piper’s bill will go unpaid.
In any event, I think those retirees fishing on the Saginaw Bay might have a little more pressure to bring home a good catch day in and day out. The fish they are eating, though likely reared in an environment polluted from the run-off at a nearby Dow Chemical plant, might become a dietary staple should G.M. disappear like the horse and buggy industry. And I feel kind of sorry for them. I know my stepdad isn’t going hungry, unless the fish stocks are just done run out. But I sure hope those shop rats brushed up on their fishing skills while they were working the line.
