GM and Ford: When Buyouts Become Only way to Reduce Pensions

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GM and Ford: When Buyouts Become Only way to Reduce Pensions

“During my career I was told I was a valuable member of the GM family. Now they’re saying, ‘here’s your check, go away.’” These are the remarksof a disgruntled Rick Knoth, a former engineer at General Motors Company (NYSE:GM). Apparently, the 60 year old retiree who has invested close to 4 decades-37 years to be exact- in General Motors has been given a buyout of over half a million dollars. Knoth unhappily accepted the buyout.

Where is the gratitude?

While a check of more than $500,000 may seem inviting, it is not quite the case for Rick Knoth and many other General Motors and Ford retirees (some of who are getting a whole lot more).

Most of the retirees feel as if the buyouts are aversions of earlier commitments. To add salt to injury, a section of these retirees go on to believe that they may outlive their payments.

Following the rickety financial outlook at the wake of the 2008 financial crisis, Ford and General Motors were overwhelmed with pressing financial obligations. One specific obligation that tapped the interests of critics in Wall Street was the enormous pending pension payments. In a last ditch attempt to restore beauty to their balance sheets, the two companies were compelled to come up with a solution; buyouts.

The move comes after the two automotive heavyweights recorded positive comebacks in their 2011 finances.

Sealing the hole in the pocket

The reality is that the pensions are a huge hole in the pockets of Ford and General Motors. Worse yet, holes that choose to show up in uncertain economical environments.  General Motors and Ford have pension obligations of $134 billion and $74 billion respectively.

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Taking a look at General Motors, it comes of note that the lump buyouts to 42,000 pensioners will save the company $26 billion.

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