General Motors’ new start not as fresh as it looks
The new start at General Motors isn’t as fresh as it looks. Last year’s quick-rinse bankruptcy washed away almost $90 billion of debts and other obligations. But there are still wrenches in the Detroit automaker’s gears that its Chapter 11 restructuring was supposed to remove more cleanly.
Sure, in the six months since emerging from bankruptcy GM almost eked out a profit before interest and taxes, after stripping out a couple of big one-off items. As the economy improves, GM should have a good shot at climbing out of the red before 2010 ends.
But costs remain high, just shy of the $63 billion old GM spent in the admittedly slower first half of 2009. And the Motown manufacturer’s factories produced at just 61 percent of capacity in the fourth quarter. That’s encouraging in a way, as it means GM has room to grow as car sales pick up. But a rough-and-ready calculation implies that for the rate to reach 100 percent, annual U.S. car sales would have to hit 18 million — more than at the height of the boom. In other words, GM still has fat to trim.
GM also still has pension problems. Retiree funds are currently short by some $27.5 billion, three-fifths of which is in the United States. GM already reckons it will contribute $43 billion to its U.S. pensions over the next five years. That could rise by 2013 if the plans remain underfunded.
The company is also still on the hook for $9.5 billion of non-pension costs — including life insurance and healthcare for retirees younger than 65. What’s more, the UAW is suing GM for $450 million the union says it is still owed as part of a settlement to help get parts supplier and former subsidiary Delphi out of bankruptcy last year.
These obligations are, at least, nowhere near as overwhelming as pre-bankruptcy ones. But prospective investors in a share sale — and taxpayers hoping to recoup some of their $50 billion in aid — would do well to remember that the retooled GM still has a ways to go before it shakes off its past.