GM Still Has One Big Financial Problem

Based on the current stock price, anyone could buy GM for a mere $31 billion and change.  However, if you did buy the company, you would also take on $109 billion in "current" pension liabilities.  That's a burden that is 350% greater than the market value of the company. 

In June, GM announced that it was going to try and reduce those liabilities by $26 billion by offering 42,000 non-union employees a chance to opt out of their pensions by accepting a one-time, lump-sum payout at age 65.  The payout, itself, would be equal to whatever the annual pension would have been  over 12 years; starting at age 65.  Now, the cash for this is basically taxpayer money; part of the $33 billion that was left over from the $50 billion that the government gave GM to remain solvent.

But, even with this lump-sum program, GM is still left with $83 billion in liabilities; of which, $71 billion are theoretically non-negotiable union pensions.  That $83 billion is still 260% greater than the company's value, and, because union pension programs remained intact following last year's 4-year labor contract agreement, those pension liabilities will only continue to grow. 

Now, even if GM could fund the pension liabilities with every dollar it made in profits, it would still mean that it would take a decade or more to cover that liability in total; and, of course, realistically, that just won't happen.  Its pension liabilities could be a ticking time bomb that could sink the company once again.

The problem here was the way GM was bailed out.  Obama sided with labor, and all the labor commitments and contracts were left unchanged.  That would not have happened if they went through a normal bankruptcy process.  As a result, you have a company that, in the short term, looks to be successful,  but, in the long term, may be a disaster waiting to happen.  This is a major reason why GM's stock price is so low; below $20/share.  And, the taxpayers?   They're really screwed because its looking like it will never get back to the $53/share that is needed for us to breakeven on Obama's bailout of the company.  Basically, GM is another Obama Solyndra.   This time, a bankruptcy in slow motion.