So far, it has cost the U.S. Treasury $81 billion to keep the poorly run, union-screwed automakers GM and Chrysler alive. They are now basically co-owned by the federal government and the UAW.
Recent stories about the companies — now derisively named Government Motors — should make us even more nervous about what they will cost us, going forward.
One was a report on CNNMoney (April 7) that GM lost $3.4 billion in the fourth quarter of 2009. After the legendary cash-for-clunkers program, which was supposed to boost sales for our ailing automakers, this was a disappointment, to say the least.
Now, GM is saying that it will return to profitability sometime this year. Perhaps, but things look dicey, for a couple of reasons. First, during the same period, both Ford and Toyota reported profits. Second, the pension funds for both Chrysler and GM are grossly underfunded and will need to be brought up to a proper level.
As reported in The New York Times on April 6, the pension plans at the two companies are underfunded by a staggering $17 billion. As the story dryly notes, if the companies don’t return to profitability, the pension plans could fail.
To correct the pension underfunding, GM will need to fork over $12.3 billion, and Chrysler $3.4 billion, over the next five years, just to achieve minimum funding levels. This, of course, will make it even harder for them to become profitable.
What if the pension funds fail? Well, here is where the fun begins.
In that event, the Pension Benefit Guaranty Corporation (PBGC) will have to cover the pensions of 650,000 GM employees and 250,000 Chrysler employees. For as long as they live.
At that point, the PBGC would likely be pushed off a cliff. As I observed in a Reflection some time back (“Pension pains,” October 2006), the PBGC has itself been underfunded for years.
But, hey, the taxpayer won’t mind rescuing the PBGC.