Posted: 3:46 am
July 24, 2008
GM doesn't only stand for Gen eral Motors anymore. It also stands for "grab money."
With profits down by a shocking amount in the depressed auto industry, the Grab Money Corp. is getting its liquidity from the people who can least afford it - its retirees.
The nation's biggest automaker - but no longer the world's - is soon expected to report a big second-quarter loss.
And with the economy not showing much acceleration, the hard times are expected to continue.
There have even been whispers - nah, make them shouts - that GM might have to file for bankruptcy protection, perhaps along with other American automakers.
So, it turns out, that GM is very lucky that its retirees are so generous - even if they probably aren't aware of their own magnanimity.
Wall Street firm Credit Suisse says GM has a pension plan that is overfunded by about $19 billion and "the company has cleverly begun using the pension surplus to fund early retirement programs and other restructuring-related initiatives."
By the end of the year, Credit Suisse thinks the pension fund will have only $11 billion in excess funds because Grab Money Corp. will have used a lot of it and because the retirement plan's investments will lose money.
Ironically, GM's retirement fund managers made a smart move this year by reducing their exposure to the stock market.
If they hadn't, the retirees couldn't have been nearly as nice as they didn't know they were to the company.
Taking money from overfunded pension funds is perfectly legal and even smart - unless, of course, the cost of providing for retirees (including those who will soon be leaving because of recent GM cutbacks) increases by too much. Or, if the fund's investment returns get even worse.
And that's a situation that can change quickly.
David Zion, a Credit Suisse analyst, reports that the pension funds of the 500 companies that make up the Standard & Poor index, were overfunded by $60 billion at the end of 2007. Right now, they are $110 billion underfunded.
GM had no comment.
Note to The New York Times: Interest rates have been moving higher for months because of concerns about the health of the financial system.
And because of worries that the Federal Reserve has lost control over the economy - something the paper forgot to mention in yesterday's front-page story.
This column worried about just such a scenario a year ago and has followed the rate rises assiduously every since.
But now that the Times made this story the lead of the entire paper, I guess we can feel validated.
