Pension burden at General Motors and Ford eases

Article by Anita Panait, on July 31, 2013

US carmakers General Motors and Ford Motor Co. recently remarked that they made significant improvement in their plans due to rising interest rates used to calculate the cost of future pension payments to retirees.  Both GM and Ford are burdened by what is considered as some of the largest pension obligations among all companies in the United States, as they try to free up more cash to invest in future models. 

Higher interest rates lower the cost of future pension payments. This means that pension shortfalls could fall without larger payments by the companies. This allows companies to spend and invest more on their business and less on retirees, allowing them to develop and build more competitive cars like the Chevrolet Impala and Ford Fusion as well as to post better-than-expected profits.

Michael Razewski, principal at Douglas C. Lane & Associates, remarked to Bloomberg that “it's one less thing investors have to worry about on the risk side."

Razewski added to Bloomberg that the less Ford has to focus on funding the pension, the more the carmaker could focus on driving innovative products and services and meeting customer demand. Both GM and Ford have been spending lots of moneys to finance their pensions, which is currently one of their major challenges.

Ford is planning to contribute $5 billion in cash to its pension this year, on top of $3.4 billion and $1.1 billion in 2012 and 2011 respectively.  Ford’s pension payments are almost at par to the $5.5 billion the US carmaker has earmarked to capital spending in 2012. [source: automotive news - sub. required]

Topics: gm, ford

If you liked the article, share on:

Comments

Recommended

The first time Porsche revealed the Panamera Sport Turismo to the public was during the 2017 Geneva Motor Show earlier this year. And now it has already entered production, and...
by - July 27, 2017
Autocar has got some juicy rumours for us regarding a new McLaren hypercar. The British publication has inside sources claiming that a new model will be added to the Ultimate...
by - July 27, 2017
Ferrari has recently launched the New Power15 extended warranty program. The company developed this program in response to the notion that supercars are very expensive to maintain. Truth be told,...
by - July 27, 2017
The UK it seems is about to take the same road as its neighbouring country France by banning sales of petrol and diesel vehicles beginning 2040. As reported by The...
by - July 27, 2017
What has BMW been up to lately? The company recently announced that they are currently focusing on electrification, and so far, their new architecture will enable “electrification of every model...
by - July 26, 2017
Facebook

Youtube Channel

Tip Us
Do you have a tip for us?
Did you film an important event?
Contact us
Newsletter
Subscribe to our newsletter!
Subscribe
Galleries