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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: zonder who wrote (13498)10/15/2004 10:31:23 AM
From: mishedlo  Read Replies (1) of 116555
 
GM’s problems are only beginning.
Falling stock prices for a company using its own stock to prop up its pension plan is going to cause a day of reckoning on its pension plan assumptions. GM is trading at a 52 week low. GM is underwater on any stock it used to "fund" its pension plan. A debt downgrade will increase this problem, possibly dramatically. IMO It was a moral hazard for the GM to “fund” its pension plan this way. It exaggerates any move up or down. In this case I can not see how GM failed to see these problems coming down the road. GM’s pension plan assumptions are among the most liberal out there. As long as the pension plan woes loom over GM, it just will not be able to compete against Toyota and Honda. Compounding the problem is a lack of models outside SUVs, rising gas prices, and loss in market share.
Ultimately I believe GM’s debt to be worthless. When and how we get there is a story for another time. In the end, I expect its pension plan will be dumped on US taxpayers via the PBGC (pension benefit guaranty Corp). Unfortunately, the pensioners will get severely reduced benefits as well, just like airline industry. It is a lose lose situation all around.

Mike Shedlock
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