* GM-UAW agree to tackle pension risk issue-letter
* Pension issue hurting GM stock, credit rating-letter
* Analysts, union dissidents say pension buyouts possible
By Deepa Seetharaman and Bernie Woodall
DETROIT, Sept 26 General Motors Co (GM.N),
facing a pension shortfall that may rival its market value by
year-end, has won an agreement from the United Auto Workers to
consider ways to reduce the risk of its underfunded plan, a
letter between the automaker and the union shows.
The letter, which is part of a proposed four-year labor
contract with GM workers, does not detail specific steps GM and
the UAW might take to address the pension problem.
But it suggests both sides would consider a plan allowing
union-represented retirees to voluntarily take lump-sum cash
payments in exchange for giving up their pension claims.
GM exited bankruptcy in 2009 as part of a sweeping
restructuring that slashed debt and now boasts total liquidity
of almost $40 billion. But addressing the automaker's pension
shortfall would take aim at a major concern for GM investors.
"The parties agreed that the national parties may mutually
agree during the term of this agreement to amend the plan to
add retirement options for some or all existing retirees," GM
Vice President of Labor Relations Cathy Clegg wrote to Joe
Ashton, the UAW official in charge of GM negotiations.
Those options would "benefit existing retirees by providing
an additional voluntary option," according to the letter.
UAW officials did not immediately comment, but union
dissidents said it could force further concessions on retirees,
who will not vote on the tentative contract.
The possibility flagged by the letter could lead to an
agreement on retiree benefits that may not be detailed to the
nearly 113,000 active union workers who vote to ratify labor
contracts at GM, Ford Motor Co (F.N) and Chrysler Group LLC
FIA.MI, said Gary Walkowicz, a union official who works at a
Ford plant in Dearborn, Michigan, but is opposed to the GM
GM declined to comment on the letter, which is part of the
contract UAW local bargaining units are expected to ratify this
week. The letter was revealed in an addendum to the contract
released by union dissidents on a website.
Globally, GM's pension obligations in its plans topped $128
billion at the end of 2010. The plans are underfunded by more
than $22 billion, according to the automaker's annual
securities filing with U.S. regulators.
Some analysts said the underfunding could swell to more
than $30 billion by the end of 2011 because of the recent drop
in interest rates. This would put the shortfall on par with
GM's market capitalization of less than $33 billion.
"GM's financial structure is considerably weaker than what
its balance sheet appears, and its pension liabilities are the
reason," Kenneth Hackel, president of CT Capital LLC, said.
In the U.S. alone, GM's pension obligations topped $100
billion at the end of last year. By the end of June, the U.S.
plan was underfunded by $10.8 billion, excluding some $2
billion in stock GM put in plan in January.
"The presumption then is there would be some kind of
voluntary buyouts," said Gregg Shotwell, a retired GM and
Delphi worker and union dissident.
"My question to the UAW is your duty isn't to enhance the
equity and liquidity of General Motors," he said. "It's to
protect the retirees in this case."
'OFF THE TABLE'
GM provides pensions, or fixed payments, to 515,900 GM
retirees and their surviving spouses. More than two thirds of
the liability represents claims of blue-collar workers.
At an investor conference earlier this month, GM Vice
Chairman Steve Girsky said the automaker would like to take the
pension risk "off the table" for investors. He pointed out that
GM does not have to "put a penny" into the plan until 2015.
GM's pension risk has hurt its ability to achieve an
investment grade rating and weighed on its stock, GM's Clegg
said in the letter.
Hackel projects that GM's underfunded pension liability
globally will swell to $36 billion by the end of the year when
factoring in the lower interest rates and the weak stock
"To take it completely off the table, you'd have to convert
everybody to a 401(k) plan," said Peter Bible, a former GM
chief accounting officer. He said such a deal would parallel
the 2007 agreement with the union that relieved GM of its
retiree healthcare obligations.
"That's black and white, and between there is somewhere
where it will land," Bible, now a partner-in-charge at
accounting firm EisnerAmper LLP added. "The idea is to limit
the employer's exposure to the markets."
(Reporting by Deepa Seetharaman and Bernie Woodall;
additional reporting by Ben Klayman; editing by Bernard Orr)