From Executive Intelligence Review (emphasis added):
GMAC is far larger than all the other combined parts of its parent General Motors; its debt, at about $260 billion, is bigger than that of any other American corporation except the huge government-sponsored Federal National Mortgage Agency (Fannie Mae), whose mortgage debt it invests in. During 2005, GMAC will be caught simultaneously in a shrinking real estate bubble, in the tar pit of falling global auto sales, and possibly in the unpaid obligations of General Motors' pension plan. GMAC could play a major part in a collapse of the dollar and dollar credit markets.Let's put this $300 billion into context. It's more than third world annual debt service (2001 data). We could buy municipal light rail, to the tune of 3,000 new miles (freeing us from cars, oil and air pollution in the process). It's equivalent to the nation's pension shortfall (2003 data - requires registration ). Then there's the cost of the war in Iraq.
Standard & Poor has downgraded GM stock to negative (from stable); insiders expect a downgrade to "junk" is in the works. The result will be higher cost of borrowing to finance operating cash flow, which is projected at a negative $2 billion for 2005; earlier forecasts had been for positive $2 billion. Even before Wednesday's news, GM was paying 3-4% more than Treasury bond rates.
The business press has made much of GM's labor costs. From Reuters:
The largest private U.S. provider of health care, GM has estimated that its U.S. health care costs for more than 1 million current and retired workers and their families will grow to $5.6 billion this year from $5.2 billion in 2004...GM's pension fund is underfunded by $17 billion. Bush Administration "pension reform" efforts would penalize companies with underfunded plans. Will auto pensions follow those of the airlines and steel sectors? If so, who will foot the bill? American taxpayers?
GM would probably have to declare bankruptcy to break free from its pension and health-care obligations with the UAW, however, and analysts say an airlines-style Chapter 11 seems unlikely for now.
Labor and pension costs reflect a restructured workforce, according to Executive Intelligence Review:
... the auto workforce has shrunk by 70% since 1980—at an accelerating pace since 2000—and ... is becoming increasingly a non-union, low-wage, and even minimum-wage sector... It now has far more pensioners than working employees. Michigan UAW local president Eugene Morey cites Henry Ford's famous principle—auto workers have to be readily able to buy the cars they make—and points out that this principle can't be violated across the auto sector, without paying the consequences in the whole economy.The beleagured company also saw its primary parts maker fire its chief financial officer; that company president may resign in "an 'Enron-style' accounting scandal."
The global conglomerate held 50 percent of the US auto market in 1970 and 32 percent 10 years ago. Today its share has dropped 25 percent. Earlier this month, GM replaced its top sales team.
See Autoweek, Executive Intelligence Review, Boston Globe, Houston Chronicle, International Herald Tribune, Reuters, Times Online