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To: Jim Bishop who wrote (109927)	10/15/2002 5:40:53 PM
From: Jim Bishop	Respond to of 150070

Automakers Face Huge Pension Gap -Fitch Tue Oct 15, 2:05 PM ET By Jonathan Stempel NEW YORK (Reuters) - U.S. auto-related companies will likely end their 2002 fiscal year with more than $30 billion of underfunded pensions, more than double the level a year ago, as stocks fall for a third straight year, Fitch Ratings said on Tuesday. General Motors Corp. (NYSE:GM - news) and Ford Motor Co. (NYSE:F - news) might be responsible for $22 billion of underfunded pensions together by year end, Fitch said. Suppliers such as tire maker Goodyear Tire and Rubber Co.(NYSE:GT - news) and diesel engine maker Cummins Inc. (NYSE:CUM - news) might also face "challenges," it said. The credit rating agency studied 22 auto sector companies with collective underfunded pensions of $13.9 billion in fiscal 2001. A widening gap would hurt earnings and cash flow if companies are forced to contribute billions of dollars to comply with U.S. laws that protect employee retirement funds. "Frankly, nothing solves this problem," said Chris Struve, a Fitch director, in an interview. "What will mitigate this problem is stronger operating performance, substantial cash contributions, rising stocks and an economy that turns up." Auto sector companies ended fiscal 2001 with $152.1 billion of pension fund assets and $166 billion of liabilities, Fitch said. The $13.9 billion gap compares with a $23.9 billion over funded status just two years earlier, it said. The gap is swelling, Fitch said, because of a more than 20 percent drop this year in the Wilshire 5000 index, a broad U.S. stock market index. Fitch estimates that most big companies keep 55 percent to 75 percent of pension assets in stocks. Fitch said it expects the funding shortfall for GM, which is based in Detroit, to rise this year to about $17 billion from $9.1 billion. It said the shortfall for Ford, which is based in Dearborn, Michigan, should total at least $5 billion, compared with a $596 million over funded status last year. GM SAYS COST CUTS NEEDED GM Chief Financial Officer John Devine said in a Tuesday conference call that GM's pension expenses will rise roughly $1 billion, or $1.80 per share, next year, and will force the automaker to make "very aggressive" North American cost cuts. The world's No. 1 automaker on Tuesday reported a fiscal third quarter net loss of $804 million, after accounting for a $2.2 billion pretax write-down for its stake in the auto operations of Italy's Fiat SpA (FIA.MI). Ford, dogged by investor skepticism and analyst reports about cash and market share erosion, is expected to report third-quarter results on Wednesday. Cummins spokeswoman Lea Cain said Cummins plans to address pension liabilities in its third quarter earnings conference call on Thursday. Goodyear did not immediately return a call seeking comment. Merrill Lynch & Co. last month estimated that pension funds of 98 percent of the 346 companies in the Standard & Poor's 500 stock index that it surveyed will be underfunded by year end. Struve said: "Two-and-a-half years of negative stock market returns, a recession, weak operating earnings, and low interest rates are the perfect storm for pensions." Fitch said the other Big Three automaker, DaimlerChrysler AG (NYSE:DCX - news) (DCXGn.DE), is better positioned than its larger rivals because its Mercedes-Benz brand is performing well. Fitch said it based its study on publicly available data.