Benefit Burden Puts GM in Slow Lane

Is General Motors Corp. another Social Security crisis in the making?

As Washington lawmakers debate what to do about the underfunded federal retirement program, the Detroit automaker is grappling with its own giant pension and healthcare mess.

And as with Social Security, fixing GM won't be quick or easy.

The problem, in a nutshell, is this: GM doesn't sell enough cars and trucks to justify its current production capacity. Although closing more plants and laying off more workers would save some money, it wouldn't ease the company's benefit burden, which totals nearly $150 billion.

GM Chief Executive Rick Wagoner believes the company can manage its way out of trouble, but generations of GM executives have failed to stem a steady decline in market share, which fell to 25.8% in this year's first quarter from 42.3% in 1984. Now, some financial analysts are even willing to talk about Chapter 11 bankruptcy as a radical move to buttress GM's eroding finances.

If the company sought bankruptcy protection, "contracts with the union and their existing healthcare agreements could be renegotiated, they could offload their pension obligations [onto the federal government] and they could get rid of fixed costs," said Paul Newton, automotive analyst in the London office of economic consulting firm Global Insight.

Wagoner and other company executives dismiss such talk as nonsense, but that possibility is of prime concern to many of GM's 160,000 U.S. workers and 440,000 pensioners and their dependents.

Outside a GM plant in Pontiac, Mich., Fred Spearing, who builds prototype vehicles, said: "Everybody is walking on eggshells right now out of fear they will be laid off or even lose their retirement" benefits.

Like the Social Security system, GM has ample financial reserves -- for now. The company has $19.8 billion in cash reserves, more than enough to fund this year's $5.5 billion in healthcare costs.

But Wagoner, who declined to be interviewed, must find a way to reduce the company's so-called legacy costs: $87 billion in pension obligations and $60 billion in retiree healthcare benefits. He has said that healthcare costs have reached a "crisis" stage and that GM needs to talk candidly with the United Auto Workers about finding a solution; the company also has suggested reducing other benefits.