Recommendations for resolving the pension crisis faced by General Motors Corporation
RECOMMENDATIONS FOR RESOLVING THE PENSION CRISIS FACED BY GENERAL MOTORS CORPORATION: BASED ON AN ANALYSIS OF GM, THE AUTOMOTIVE INDUSTRY AND GLOBAL MARKET CONDITIONS Submitted to: Mr. ... Devine, GM Vice Chairman and Chief Financial Officer General Motors Corporation 300 Renaissance Center Detroit, MI USA, 48265-3000 Prepared by: Eric Kowalchyk Worldwide Consulting, Inc. ... Recommendations and Summary Analysis The most logical method of confronting General Motors’ current pension fund crisis is a basic reduction of costs to increase revenues. ... Another effective method for dealing with an overwhelming cost of pension funds is to secure a market share in the growing global demand for automobiles. ... Details involving prospective target countries and key strategies to maximize the effectiveness of GM’s global operations comprise an additional solution to GM’s pension crisis. ... Background of the Problem Authorization of the Study This report on confronting GM’s current pension funding situation is submitted on October 27th, 2003 to Mr. ... Statement of the Problem GM is the current leader in under funded pension plans. ... Standard and Poor’s and Moody’s have both recently downgraded GM to just two notches above a junk bond due to its pension liabilities (Richard, Sullivan 2003). ... 3bn pension fund shortfall. Below in figure 1 you can see that by far GM’s pension costs exceed its competitors’. ... The McGraw-Hill Companies, Copyright 2003 Present economic conditions also influence pension liabilities, for example a one percentage-point change in long-term yields can easily shrink or inflate a companys pension liability by 10% or more (Hechinger 2003). Along with GM’s substantial pension and retiree obligations they must face mounting competitive pressures in the North American auto market, particularly from Japanese and German auto makers. Method of Solving the Problem In search of the most appropriate solution to GM’s pension crisis I first analyzed GM’s current market status by examining its website, financial statements and a Standard and Poor’s review. ... After reviewing this information I developed what I believe to be the most pertinent and sound recommendations based on global conditions and automotive industry trends. Steps in Analyzing the Problem In the analysis that follows I believe that either recommendation will improve GM’s pension problem and overall profitability. However, the implementation of both recommendations would allow for the most effective results.