GM Files for bankruptcy
Comments
-
you are ignoring the pension and healthcare costs which are factored into those #'s
http://www.washingtonpost.com/wp-dyn/ar ... Apr18.html
General Motors Getting Eaten Alive by a Free Lunch
A free lunch can be the most expensive meal in the world. For living proof, look at General Motors. A big reason that GM has gotten into such trouble is that the pension and health care commitments it made to employees decades ago seemed to be a free lunch.
The United Autoworkers placed a high value on these benefits, but the accounting rules of the time placed no cost on GM's risk of providing them. So the UAW and GM made deals that were heavy on benefits, relatively light on wages.
Lower salaries meant that GM reported higher profits, which translated into higher stock prices -- and higher bonuses for executives. Commitments for pensions and "other post-employment benefits" -- known as OPEB in the accounting biz -- had little initial impact on GM's profit statement and didn't count as obligations on its balance sheet. So why not keep employees happy with generous benefits? It was a free lunch. Besides, GM's only major competitors at the time, Ford and Chrysler, were making similar deals.
Now, as we all can see, pension and health care obligations are eating GM alive. The bill for the "free" lunch has come in -- and GM is having trouble paying the tab. In the past two years, GM has put almost $30 billion into its pension funds and a trust to cover its OPEB obligations. Yet these accounts are still a combined $54 billion underwater.
"Any market economist would tell you that things that are 'free' are overconsumed," says Greg Taxin, chief executive of Glass, Lewis & Co. "That's true of pensions, it's true of OPEB, and it's true of stock options in the '90s." That's a lesson the SEC seems to have ignored, given last week's decision to let companies delay counting the value of options as an expense. But that's a topic for another day.
GM began its slide down the slippery slope in 1950, when it began picking up costs for medical insurance, pensions and retiree benefits. There was huge risk to GM in taking on these obligations -- but that didn't show up as a cost or balance-sheet liability. By 1973, the UAW says, GM was paying the entire health insurance bill for its employees, survivors and retirees, and had agreed to "30 and out" early retirement that granted workers full pensions after 30 years on the job, regardless of age.
These problems began to surface about 15 years ago because regulators changed the accounting rules. In 1992, GM says, it took a $20 billion non-cash charge to recognize pension obligations. Evolving rules then put OPEB on the balance sheet. Now, these obligations -- call it a combined $170 billion for U.S. operations -- are fully visible. And out-of-pocket costs for health care are eating GM alive.
GM spokesman Jerry Dubrowski says the company expects to pay $5.6 billion in health care costs this year for 1.1 million people covered by its plans. That's up from the $3.9 billion it shelled out in 2001 to cover 1.2 million people.
"At the time GM began offering these benefits, no one had any idea that the costs for prescription drugs and medical services would explode the way they have," Dubrowski said. True. But the UAW was astute (or lucky) enough to push the risk of covering these costs onto GM.
GM's pension funds are in pretty good shape, thanks to an $18.5 billion infusion two years ago. GM got this cash by selling bonds at relatively low rates, hoping to resolve its pension problems once and for all. This maneuver has been successful so far, but funding the pension plans has consumed much of GM's borrowing power and strained its balance sheet.
At the end of last year, GM says, its U.S. pension funds showed a $3 billion surplus. GM's pension accounting, which assumes that the funds will earn an average of 9 percent a year on their assets, is highly optimistic. But things are under control -- as long as GM stays solvent.
By contrast, OPEB is out of control. At year-end, OPEB was $57 billion in the hole, even though GM threw $9 billion into an OPEB trust in 2004. The company has no legal obligation to pre-fund these costs, but it's trying to show the financial markets and its workers that it's dealing with them. The OPEB trust has a hefty $20 billion of assets -- but GM calculates its obligations at a staggering $77 billion.
What's more, GM says they're rising at 10.5 percent a year. Thus, even though President Bush's Medicare prescription drug benefit whacked $4 billion off GM's OPEB obligation last year -- thanks, George -- it covered barely half the year's increase in the liability.
If GM were making lots of money selling vehicles, this would all be manageable, sort of. GM could buy enough time for demographics to bail it out, as more retirees begin getting Social Security and Medicare, reducing GM's costs, and other retirees die off. Its ratio of retirees to workers, currently 2.5 to 1, would shrink. Alas, GM's vehicle business is in the tank. Unless GM starts making money on vehicles or gets a break from the UAW or the federal government, things are going to get really ugly. I hope that doesn't happen, but it easily could.
The bottom line: Whenever you offer someone a free lunch, make sure that you'll be able to pay the bill when it comes in.0 -
i think expecting to get paid 35hr to push a robot holding a piece of something into place and pressing a button on an air powered screwdriver is ridiculous. maybe if vehicles didnt break so damn much it would seem a lil worth it,0
-
mrvedderson wrote:i think expecting to get paid 35hr to push a robot holding a piece of something into place and pressing a button on an air powered screwdriver is ridiculous. maybe if vehicles didnt break so damn much it would seem a lil worth it,
when GM was selling boat loads of SUV's, $35/hr as well as well as all the benefit expenses were affordable. but then gas went to $4 and people stopped buying those SUVs and GM didnt have enough time to adjust to the volatile Oil market and consumer demands. thats a mgmt problem..but their hands were tied because they still had to pay those high wages and benefits even with no money coming in.
the logical thing would have been to cut costs since revenue was not coming in. but the UAW decided otherwise.0 -
jlew24asu wrote:ok what about it? why are you not understanding that GM could no longer afford to pay the high UAW costs? its pretty simple really.
what about the part that says GM executives make substantially more than executives at other car companies? $8.5 million a year to be a CEO? ... how many $65,000 a year jobs are that?0 -
polaris_x wrote:jlew24asu wrote:ok what about it? why are you not understanding that GM could no longer afford to pay the high UAW costs? its pretty simple really.
what about the part that says GM executives make substantially more than executives at other car companies? $8.5 million a year to be a CEO? ... how many $65,000 a year jobs are that?
according to my math...139. considered GM's 20,000+ UAW workers....not a big deal.
ok what about them? I'm not giving them a free pass. they were grossly overpaid as well.0 -
jlew24asu wrote:polaris_x wrote:jlew24asu wrote:ok what about it? why are you not understanding that GM could no longer afford to pay the high UAW costs? its pretty simple really.
what about the part that says GM executives make substantially more than executives at other car companies? $8.5 million a year to be a CEO? ... how many $65,000 a year jobs are that?
according to my math...139. considered GM's 20,000+ UAW workers....not a big deal.
ok what about them? I'm not giving them a free pass. they were grossly overpaid as well.
well ... that's just the ceo - how many make up senior management? ... say you feel the gm workers should be paid $45,000 and that $1 million is reasonable for ceo ... well - that makes one overpaid executive = 3,750 overpaid workers ...0 -
Byrnzie wrote:jlew24asu wrote:the UAW are the highest paid, best taken care of employees in the world.
Yes Jlew, of course they are:
http://home.flash.net/~comvoice/42cUAW.html
August 2008
'...The workers struck against outrageous wage cuts and other concessions demanded by the auto parts capitalists at AAM. They held out defiantly and in good spirit for three months. As the strike proceeded, the lack of parts had forced many GM plants to close, and both AAM and GM were taking heavy losses. Yet at the end, they were forced to accept a contract that slashes wages in half, eliminates jobs, cuts benefits, hurts pensions, etc...And the result is that now UAW wages are declining to poverty-level...'
No SHIT! This was last fall when GM was desperately trying to stay solvent and keep operating. But when it's clear they're going under, is the union willing to compromise? Hell no, they say "fuck you", go on strike, and hurt the company even more. Great way to keep your job there... cause the company barely staying afloat even greater losses in the worst economy in 100 years because you don't want to take a pay cut like everyone else in America.0 -
polaris_x wrote:
well ... that's just the ceo - how many make up senior management? ... say you feel the gm workers should be paid $45,000 and that $1 million is reasonable for ceo ... well - that makes one overpaid executive = 3,750 overpaid workers ...
I suppose you think Sr mgmt should make the same as plant workers or secretaries? yes, I think the mgmt should have taken a pay cut....and most of them did in the last few years. but they are not bound by a Union contacts. Executives do take pay cuts during restructuring, the UAW did not.
I'm sure you know about the ones who took government money, like AIG and Citi..those CEO salary's is $1.0 -
jlew24asu wrote:I suppose you think Sr mgmt should make the same as plant workers or secretaries? yes, I think the mgmt should have taken a pay cut....and most of them did in the last few years. but they are not bound by a Union contacts. Executives do take pay cuts during restructuring, the UAW did not.
I'm sure you know about the ones who took government money, like AIG and Citi..those CEO salary's is $1.
in my example - i gave the ceo $1 million - how much do you think they should make? ... i am not disagreeing that the union played a role here - but they seem to be the easy target here ... these executives are making large amounts of money - and their compensation is not always in salary - there are bonuses and perks that union workers don't get ...
for every story about the so-called compassionate ceo - there is a story of executives who are throwing lavish parties with bailout money ... let's face it - the sense of entitlement exists on both sides of the fence - the difference is that $value of that entitlement is far greater on the executive side ...0 -
polaris_x wrote:jlew24asu wrote:I suppose you think Sr mgmt should make the same as plant workers or secretaries? yes, I think the mgmt should have taken a pay cut....and most of them did in the last few years. but they are not bound by a Union contacts. Executives do take pay cuts during restructuring, the UAW did not.
I'm sure you know about the ones who took government money, like AIG and Citi..those CEO salary's is $1.
in my example - i gave the ceo $1 million - how much do you think they should make? ... i am not disagreeing that the union played a role here - but they seem to be the easy target here ... these executives are making large amounts of money - and their compensation is not always in salary - there are bonuses and perks that union workers don't get ...
for every story about the so-called compassionate ceo - there is a story of executives who are throwing lavish parties with bailout money ... let's face it - the sense of entitlement exists on both sides of the fence - the difference is that $value of that entitlement is far greater on the executive side ...
its irrelevant to why GM failed. but its good to know you dislike executive pay and benefits. no one cares.0 -
polaris_x wrote:jlew24asu wrote:I suppose you think Sr mgmt should make the same as plant workers or secretaries? yes, I think the mgmt should have taken a pay cut....and most of them did in the last few years. but they are not bound by a Union contacts. Executives do take pay cuts during restructuring, the UAW did not.
I'm sure you know about the ones who took government money, like AIG and Citi..those CEO salary's is $1.
in my example - i gave the ceo $1 million - how much do you think they should make? ... i am not disagreeing that the union played a role here - but they seem to be the easy target here ... these executives are making large amounts of money - and their compensation is not always in salary - there are bonuses and perks that union workers don't get ...
for every story about the so-called compassionate ceo - there is a story of executives who are throwing lavish parties with bailout money ... let's face it - the sense of entitlement exists on both sides of the fence - the difference is that $value of that entitlement is far greater on the executive side ...
I agree with all but the last sentence. The combined value of the entitlement of a 600,000 worker company with inflated wages means that the labor side is a much huger company hit than even 2-3 huge lavish CEO parties. Though you are correct that BOTH need to stop. These frivolous, back-slapping perks of executive life are so out of touch with reality that it's disgusting. But that doesn't mean the biggest monetary problem these companies face is not inflated wages. They could drop those lavish parties and the company is still going to go under because it's a drop in the bucket compared to the costs they incur from their pension plans and inflated worker salaries.0 -
jlew24asu wrote:polaris_x wrote:jlew24asu wrote:I suppose you think Sr mgmt should make the same as plant workers or secretaries? yes, I think the mgmt should have taken a pay cut....and most of them did in the last few years. but they are not bound by a Union contacts. Executives do take pay cuts during restructuring, the UAW did not.
I'm sure you know about the ones who took government money, like AIG and Citi..those CEO salary's is $1.
in my example - i gave the ceo $1 million - how much do you think they should make? ... i am not disagreeing that the union played a role here - but they seem to be the easy target here ... these executives are making large amounts of money - and their compensation is not always in salary - there are bonuses and perks that union workers don't get ...
for every story about the so-called compassionate ceo - there is a story of executives who are throwing lavish parties with bailout money ... let's face it - the sense of entitlement exists on both sides of the fence - the difference is that $value of that entitlement is far greater on the executive side ...
its irrelevant to why GM failed. but its good to know you dislike executive pay and benefits. no one cares.
??? ok ... our public radio station is talking about executive pay and bonuses right now ... i guess some people care - clearly not you ...0 -
soulsinging wrote:I agree with all but the last sentence. The combined value of the entitlement of a 600,000 worker company with inflated wages means that the labor side is a much huger company hit than even 2-3 huge lavish CEO parties. Though you are correct that BOTH need to stop. These frivolous, back-slapping perks of executive life are so out of touch with reality that it's disgusting. But that doesn't mean the biggest monetary problem these companies face is not inflated wages. They could drop those lavish parties and the company is still going to go under because it's a drop in the bucket compared to the costs they incur from their pension plans and inflated worker salaries.
i just meant on a per person basis - ie to save $7.5 million - you need to cut labour costs for 3,750 workers or 1 ceo (obviously rough and guestimated numbers) ... at the end of the day - there is much larger problem here that goes beyond executive pay and labour costs ... toyota i believe turned in a loss here as well so, even if GM were in line with other people in the same sector - they'd still be in deep shit - and that's on the executive and labour side ...0 -
polaris_x wrote:
??? ok ... our public radio station is talking about executive pay and bonuses right now ... i guess some people care - clearly not you ...
again, this thread is about GM. executive pay at GM had nothing to do with its collapse. if you want to cry about executives being more successful then you, make a new thread.0 -
jlew24asu wrote:polaris_x wrote:
??? ok ... our public radio station is talking about executive pay and bonuses right now ... i guess some people care - clearly not you ...
again, this thread is about GM. executive pay at GM had nothing to do with its collapse. if you want to cry about executives being more successful then you, make a new thread.
i'm not crying about anything but thanks for your concern ... just trying to engage in a thoughtful discussion0 -
jlew24asu wrote:Byrnzie wrote:jlew24asu wrote:screw its workers? thats absurd. the UAW are the highest paid, best taken care of employees in the world.
Where's your evidence?
http://mjperry.blogspot.com/2007/07/uaw ... arket.html
Bottom Line: The average UAW worker with a high school degree earns 57.6% more compensation than the average university professor with a Ph.D. (see graph above, click to enlarge), and 52.6% more than the average worker at Toyota, Honda or Nissan.
you want more evidence, do your own research. and I suggest you do, it sounds as if you know very little about the UAW.
labor costs didn't ruin GM, you're the only one I know of even suggesting that.0 -
polaris_x wrote:jlew24asu wrote:polaris_x wrote:
??? ok ... our public radio station is talking about executive pay and bonuses right now ... i guess some people care - clearly not you ...
again, this thread is about GM. executive pay at GM had nothing to do with its collapse. if you want to cry about executives being more successful then you, make a new thread.
i'm not crying about anything but thanks for your concern ... just trying to engage in a thoughtful discussion
I can't believe you knock CEOs
http://www.playboy.com/articles/playboy ... index.html0 -
Kotov Syndrome wrote:
labor costs didn't ruin GM, you're the only one I know of even suggesting that.
LOL I'm the only one huh?
Labor costs are one of many factors for its failure. to say its not is pure ignorance. as of their filing, GM had $173 Billion in debt and $82 Billion in assets. (that is not a good thing in case you dont know). the majority of their debt was to pay the Unions.0
Categories
- All Categories
- 148.9K Pearl Jam's Music and Activism
- 110.1K The Porch
- 275 Vitalogy
- 35.1K Given To Fly (live)
- 3.5K Words and Music...Communication
- 39.2K Flea Market
- 39.2K Lost Dogs
- 58.7K Not Pearl Jam's Music
- 10.6K Musicians and Gearheads
- 29.1K Other Music
- 17.8K Poetry, Prose, Music & Art
- 1.1K The Art Wall
- 56.8K Non-Pearl Jam Discussion
- 22.2K A Moving Train
- 31.7K All Encompassing Trip
- 2.9K Technical Stuff and Help