Posted By
TRACY SCHNEITER
on
2/15/2010 11:25 AM
We have previously blogged about the seemingly endless opportunities that Ford netted by distancing itself from the Detroit Bankrupt 2. Who could have imagined that leveraging everything Ford owned with the bank and bondholders vs. the government would have paid off so handsomely (especially with consumers and the public in general)? But that type of conservative financing has its downside as well.
One of the continuing problems facing all of the Detroit 3 is the funding obligation for their employee pension funds. As of the end of 2009, GM’s pension was underfunded by $18 billion, Ford’s shortfall stood at $12 billion and Chrysler’s last reported figure was $3.6 billion as of 12/31/2008. Additional reporting by GM and Chrysler this spring should give analysts a better idea of how much additional funding those OEMs need to contribute to adequately shore up their pension funds.
Ford recently reported its pension shortfall had grown in 2009 by an additional $500 million. The fund averaged a 14% rate of return on its assets in 2009 compared to the S&P 500 average of about 23%. That discrepancy means that Ford’s fund could continue to face a shortfall due to low interest rates - - this will cause Ford to increase its contribution to meet funding requirements (unless requirements are relaxed…and that’s NEVER happened before, has it?!). This is what they call those pesky “legacy costs” that Chrysler and GM just went to court to REDUCE. It will be interesting to see what Chrysler and GM report about the status of their pension funds later this spring.
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