A bailout of the bailout of Detroit?

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GM and Chrysler are short about $17 billion in contributions to the pension plans of their workers, or so says the a report from the United States General Accountability Office on the progress of the TARP. The document is called “Automaker Pension Funding and Multiple Federal Roles Pose Challenges for the Future.”

The report has three important highlights. The first is that GM has pension obligations to 702,387 people and Chrysler to 254,644 people. The second is that GM’s pension contributions were $13.6 billion underwater at the end of 2009 and Chrysler’s were short by $13.4 billion. The third is that the GAO forecasts that GM will have to put $12.3 billion into its pension plans to have them fully funded by 2015 and Chrysler will have to add $1.3 billion.

What the report says little about is that the two car companies may not have the money to put into the funds.

GM expects to make money in the second half of the year and may even have an IPO before 2011 to pay back part of its $50 billion of obligation to taxpayers. Chrysler management says the company will break even this year. The conditions of the economy will determine whether either firm’s forecasts are right. The state of unemployment and consumer access to credit may undermine their abilities to hit the lofty goals.

The two American car companies also face an unprecedented wave of discounts and rebates driven mostly by Toyota’s (TM) efforts to keep its current customers and bring in new ones. These efforts brought Toyota’s domestic market share back above 16% in March after it had fallen close to 12% in February. The cause of February’s low number was, of course, the after-shock of the Japanese firm’s recall of 8.8 million cars worldwide for brake and accelerator problems.

Whatever Toyota’s reasons for aggressive pricing, Detroit’s three companies are matching the discounts model-by-model to keep their own market shares from slipping. GM, Chrysler, and Ford (F) can ill-afford the damage to their revenues. Toyota, however, can easily afford to continue discounts.

The chance that GM and Chrysler may not be able to fully fund their pensions in the next five years means that the federal government will have to consider aid to these funds. The prospect may be unpopular with taxpayers, but labor often votes for Democrats and the Presidential election is not as far off as it seems.

The bailout of Detroit may not yet be over.

Douglas A. McIntyre

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