Chrysler, the third spoke in the one-time “Big Three” in Detroit’s automaking community has weighed in and said it doesn’t plan to head down the pension buyout highway, as Ford and now General Motors have recently announced.
Perhaps the Chrysler Group’s trans-Atlantic ownership has something to do with it – or the company may genuinely see a brighter and more potentially pension-friendly future ahead for the company – but it does not seem poised to follow the path of Ford and GM.
Chrysler and Fiat leader Sergio Marchionne told the Wall Street Journal Monday that he doesn’t feel the need to make changes to his company’s pension plans, and even suggested that the American auto scene may be on the upswing. Fiat, as you may remember, purchased what eventually became a majority share in the flailing Chrysler in 2009.
“There’s no need for us to do that,” Marchionne told the newspaper. “We’re exaggerating the fact that the economic cycle here in the U.S. is slowing down.”
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He did admit that the more pressing issue for him is the economic chaos currently swirling in Europe and as a result, the company is delaying the launch of several new models overseas.
Whatever the case, it’s definitely a very different environment when the one-time leaders of the American industrial scene have begun their own efforts to avoid the impending pension bubble and the long-term questions of their own economic viability.
The domestic car-making world is no longer the world we remember from the last century, a solid and megalithic industrial force that was as unstoppable as the often redundant automobiles it crafted and marketed to the American public.
Ford survived a half-decade of economic ruin through carefully hedged financing on the part of its current president and CEO, Alan Mulally, not to mention a very helpful 2007 deal with the United Auto Workers to move its retiree health care costs into an independent entity.
General Motors, on the other hand, teetered dangerously into darker territory of Chapter 11 and was part of the federal TARP bailout plan, though it’s paid back its loans and had begun to get back on its feet this year with solid sales and a renewed focus on booming foreign markets, especially China.
After last week’s announcement to offer one-time cash buyouts to more than 40,000 of its white-collar retirees (similar to Ford’s announcement a few weeks earlier, which will cover almost 100,000 employees), analysts began to question if it was such a great decision.
Shares dropped to a one-year low on Monday and several financial experts say that GM’s move to top up its pension fund and then use that money to purchase a $29 billion annuity from Prudential won’t go far enough to take care of GM’s outstanding pension liabilities.
Moody’s said that while shifting the responsibility to Prudential helps relieve the company from the issues facing most major DB plans - the crummy return rates on investments and the terribly unappealing interest rates for those retirement fund holdings – the whole move might only cut a billion dollars from GM’s underfunded status. Some $24 billion will remain.
And as was the case with Ford’s recent decision to make the offer, the notion of transferring retirement planning and investing responsibility to retirees themselves is a potentially dangerous prospect.
Although it might be a great time to be a retirement advisor in greater Detroit, come to think about it, as tens of thousands of reasonably well-educated and good-intentioned retirees will need some serious help in investing their substantial lump-sum checks, should they need to take them.
For the moment, Chrysler continues to roll along, celebrating major gains in auto sales and pushing itself as an improved and upscale builder of domestics; sales of actual Fiat products haven’t exactly exploded on the U.S. market, but it sounds like Marchionne still has high enough hopes for the company.