GM seeks to pare debt

January 11, 2011

GM seeks to pare debt

The Detroit News

General Motors Co.’s chief financial officer, Chris Liddell, said today the automaker aims to pay off its debt over the next couple years, including fully funding its $100 billion pension plan.

The move, he said, will strengthen GM’s position for weathering future downturns in the economy and auto sales.

Liddell said the approach marks a new philosophy for the company, which racked up billions of dollars in debt before plunging into bankruptcy in 2009.

While the auto industry is capital intensive and laden with fixed costs, borrowing money to cover such expenses is dangerous in the long run, he said. It weakens the company’s ability to invest in new vehicles during cyclical — and inevitable — downturns in the market.

“We’re all feeling good about life at the moment because we’re on an upswing, but I can assure you as night follows day they’ll be another downturn in the industry,” Liddell said.

GM will heavily target its pension liabilities — now underfunded by $29.6 billion globally — as it tries to tidy up its balance sheet. It made a $6 billion pension contribution last fall, prior to its initial public stock offering, and will continue to make payments until it’s fully funded, Liddell said.

He noted the automaker, for its size, has a huge pension obligation, a holdover from its days as a much bigger company. Today, there are about 10 retirees for every one worker, which is the opposite from most companies, Liddell said.

GM’s pension plan is about double the size of its market value, “so small swings in the pension plan can have massive changes in the value of the company and that’s just not a good way to run a company,” he said.

Once it’s fully funded, Liddell said, the company will move the assets away from risky high-return equities into more stable investments, such as bonds.


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