GM's Pension Fund Problems
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"The company's market share doesn't support its size. They have too many plants, too many workers, too many models, too many dealers and their employee benefits are too high." 1
- Stephen Girsky, Chief Auto Analyst at Morgan Stanley,2 on the problems at GM.
"It's strange. When I joined GM 28 years ago, I did it because I love cars and trucks. I had no idea I'd wind up working as a health care administrator." 3
- Rick Wagoner, Chairman and CEO of GM, on rising healthcare costs at the company.
For the third quarter ended September 30, 2005, GM lost US$ 1.6 billion on net sales of US$ 47.2 billion, the largest quarterly loss reported by the company since 1992 (Refer Exhibit I for GM's financial performance). With this loss, GM, the world's largest automobile manufacturer, had lost US$ 4 billion for the first nine months of fiscal 2005.
In May 2005, Standard & Poor's Ratings Services7 downgraded the corporate credit ratings of GM and its wholly-owned financial subsidiary, General Motors Acceptance Corporation (GMAC)8 to junk status; this led to an increase in borrowing costs for GM and reduced its fund raising options. GM was thinking of selling off some portion of its 51% stake in GMAC to raise money and to help GMAC improve its credit rating.
1] Ed Garsten, "GM's Dire Outlook Jolts Auto Industry," www.detnews.com, March 17, 2005.
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