It’s possible that General Motors Co., which holds cash until it gets information about the magnitude of retiree obligations at the end of the year, will have a pension deficit that rivals its market valuation and delays a buyback or dividend.
Kenneth Hackel, president of CT Capital LLC in Short Hills, N.J., said that the pension shortfall could go as high as $35 billion when computed with the use of lower asset returns and a lowered rate for valuing future payments.
Last month, GM's market capitalization dropped to $33.1 billion. Hackel, who is the author of two textbooks on valuing securities, said, "The financial risk because of the pension is higher than people understand.”
He explained that a person would have to raise about $35 billion if he wanted to close out his plans and a conservative discount rate is used. Bloomberg data show that GM’s pension plans have the largest deficit among U.S. firms.
Several analysts, including Christopher Ceraso of Credit Suisse AG, said that the widening gap validates GM's decision to wait before giving back the cash to shareholders. CEO Dan Akerson said that it's "imperative" that GM, which received a $49.5 billion government bailout, would fully fund U.S. pensions. Even if GM does well in the market, it could still fall behind obligations even more.
The Automotive News data center said that when looking at global vehicle sales in the first half of 2011, it turned out that GM did better than Toyota Motor Corp. GM has a market share in the U.S. of 20.4% from January to August of this year from having an 18.6% share for the same period the prior year.