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US carmakers' pension hole may be 'understated'
Friday August 22, 4:25 pm ET
By James Mackintosh in London


The hole in US carmakers' pension funds could be more than twice as big as investors thought, according to a study by Goldman Sachs.

The report concludes that deficits have been understated by $40bn (EU36.5bn) because car companies' accounts assume there will be no future increase in pension benefits.

Benefits at the carmakers are negotiated with unions as part of four-yearly pay talks. Assuming a 3.5 per cent annual rise in benefits would increase pension obligations by $22bn at General Motors, $9bn at Ford, EU5bn at Germany's DaimlerChrysler and $4bn at Delphi, the car parts supplier, the investment bank calculated.

The companies are doing nothing wrong by assuming a zero increase in benefits, because the practice is in line with US accounting standards.

But Goldman noted that airlines, steel and telecommunications companies - many of which also have pension problems - generally assume a 4 per cent annual rise in benefits, and benefits for new pensioners in the car industry have risen by an annual 5.1 per cent over the past 30 years.

Gary Lapidus, auto analyst at Goldman and author of the report, said the increase would wipe 20-70 per cent from the fair value of the shares if recognised by investors."The liabilities are far larger than has been disclosed," he said.

General Motors - which reported a $19.3bn hole in its pension fund last year - dismissed Goldman's report as"sensationalist and lopsided".

It said the bank's calculation was"grossly inflated" because pensioners typically received much lower raises than current workers.