One of the primary reasons why GM files for bankruptcy back in 2009, much to the chagrin of the Obama administration not to mention the company's creditors, was because its pension and retirement benefits had become untenable (ignoring that the GM bankruptcy inverted the liquidation analysis on its head with bondholders crammed down at the expense of unions and pensioners who are a much bigger portion of the US voting population than a few bondholders on Wall Street).
And one of the main promises made by management upon emergence was that going forward the company's OPEB and various other retirement benefits would never get out of hand again. Less than ten years later this promise appears to be cracking because moments ago, GM posted slides ahead of its earnings call next month, in which it made several notable disclosures among which:
- GM sees a $5.5 billion charge on Opel disposition, which transaction it now sees closing this year instead of by July
- Sees 2017 vehicle sales in the low 17 million range, down from the previous plan of mid-17 million units.
- It noted a weakness at the low end of the market (primarily passenger cars)
- Warned that residual values continue to be a headwind, although it said it had not changed its view of a 7% decline in residual values during 2017.
- Sees inventory rising to a record 110 days of supply by midyear, however promises that this number would decline - somehow - to 70 days by year end (not immediately clear how it would achieve this without dumping autos currently on dealer lots).
- But most importantly, it unveiled that the company hopes to raise $3 billion in debt in the US to fund its pension obligations, and that it intends to draw on the revolver at close, and issue new debt to repay the revolver.
How raising debt to fund pensions is a viable option for the "restructured" OEM, we leave up to readers, however the following comment from Peter Atwater, who said that "much of the $3 billion bond issue will be bought by pension funds of companies who issue debt to buy the debt of companies raising debt to fund pension plans", summarizes it best.
Much of which will be bought by pension funds of companies who issue debt to buy the debt of companies raising debt to fund pension plans...— Peter Atwater (@Peter_Atwater) June 26, 2017