At a time when General Motors Corp. is herding thousands of salaried employees into early retirement and hoping to do the same with its hourly workers, its pension fund shortfall could swell to $11.4 billion by the end of this year, the company said in a filing Monday with the Securities and Exchange Commission.
The gap between what GM owes and how much it has paid into the fund has grown by $2.8 billion since the end of 1991. Closing the gap could put an added strain on GM's cash reserves as the company struggles to return to profitability.
Also in the SEC filing late Monday, GM said that it will take a one-time $300-million charge against fourth-quarter earnings as it seeks a partner to "acquire a significant portion" of National Car Rental Systems. GM owns 81.5% of National. The move is consistent with the auto maker's plan to sell off many of its non-automotive subsidiaries in order to concentrate on revitalizing its core North American automotive operations.
GM said the charge will be partially offset by a one-time fourth-quarter gain of $225 million from the sale of its interest in a joint venture with Korean auto maker Daewoo and the sale of its Allison Transmission subsidiary.
At a news conference last week, GM Executive Vice President William E. Hoglund indicated that the pension fund shortfall is the result of two erroneous assumptions: that the funds would earn more and that retirees would die sooner.
GM is also grappling with a more universal problem for older U.S. industrial corporations--its work force is shrinking as the ranks of its retirees expand. The trend is expected to accelerate in coming years at the world's largest auto maker. GM has about 360,000 retirees, a number nearly equal to its 370,000 active U.S. workers.
"Particularly as (U.S. manufacturing firms) cut active employees throughout the 1980s, the ratio of retirees to active employees has changed significantly," said Harley Shaiken, a professor of work and technology at UC San Diego. "If GM keeps shrinking, which is likely, fewer active workers will be supporting an increasing number of retirees, and that could prove to be a significant cost burden."
The deficit would affect the company's retirees only if all those who qualified for pensions tried to collect at one time. But the appearance of a pension liability ballooning out of control could damage the company's attempts to scrape up support on Wall Street.
To narrow the gap between its pension assets and liabilities, GM would likely have to increase its current quarterly contributions of $937 million to the fund. That might mean diverting much-needed cash from developing new and better vehicles, which analysts agree is the key to turning GM around.
In Monday's SEC filing, the auto maker said it would not increase its planned level of contributions to the fund this year.
The $11-billion figure is also potentially troublesome because GM--and the other two U.S. auto makers--still must decide how to pay for retiree health care costs under a new accounting standard that goes into effect next year. The auto maker has estimated that those costs will total $16 billion to $24 billion, written off at one time or payable over 20 years. The combination of a one-time write-off and the pension shortfall could create a severe strain on GM's net worth.
The Associated Press contributed to this story.