GM's Pension Costs Soar.

General Motors said that its pension expenses would triple to $3 billion before tax due to weak stock markets and forecasting its earnings would fall by about a quarter. However, GM insisted it would generate enough cash this year through further cost-cutting and the roll-out of 16 new products, helping it earn $5 a share this year, down from an estimated $6.75 last year.

GM, which also has the largest U.S. private pension fund, cut the rate at which it assumes a future return on its pension assets from 10 per cent last year to 9 per cent. The move means GM will have to invest more of its own earnings into its employee pension plans. The announcement could prompt moves by other large U.S. companies to revise their pension return assumptions.

GM is in a worse position than Ford (see next article) and DaimlerChrysler on pension costs as it has more than two retirees on company pension and healthcare plans to every employee. That has placed increasing pressure on GM's balance sheet and has forced the carmaker to resort to generous consumer loans to generate as much cashflow from sales as possible. GM's pension fund assets were underfunded by $19.3 billion at the end of last year, compared with $9.1 billion in 2001.