This summer, Ford Motor Co. will start to offer lump-sum pension payout to its 98,000 white-collar retirees and former employees. This move represents the most aggressive strategy yet to handle an almost $50 billion risk. These voluntary buyouts could cut the $49 billion U.S. pension liability by a third. This move may be enough to support Ford’s credit rating and stock price.
Ford is unable to estimate how many would gamble on the offer. Pension experts face a challenging task that’s said to have a size and scope that are unprecedented. In an interview, Chief Financial Officer Bob Shanks told Reuters that if they get “at least a meaningful number of employees,” several billions of dollars of obligations may be removed.
The market shares of U.S.-based automakers have been lost to foreign automakers. As a result, the pension costs have become a more urgent matter to U.S. automakers since a few decades ago. This has turned into a hurdle for the U.S. auto industry, especially with the economic downturn a handful of years ago. These offers are included in a succession of steps Ford and General Motors Co. have taken to reduce these risks.
Last Friday, GM revealed a similar program for salaried retirees. GM said that this move will lead to a $26 billion drop in GM's U.S. salaried pension obligation. Ford’s total pension obligation in the U.S. of almost $109 billion is a primary concern for its investors. This issue wasn’t touched in 2009 during the bailout instigated by the Obama administration. Ford's U.S. pension liability has risen by nearly 50% since 2000. Ford was asked by several companies about the manner in rolling out the buyout offers. If successful, other automakers are certain to follow suit.