Just because everyone else is doing it doesn’t mean Chrysler Group needs to follow, said CEO Sergio Marchionne. Marchionne told the automotive press that he feels there is “no need” for Chrysler to follow in the footsteps of competitors General Motors Co. and Ford Motor Co. by offering its white-collar workers pension buyouts.
Lowering outsized obligations
By agreeing to pension buyouts, GM and Ford are effectively shrinking long-term pension obligations. According to Automotive news, pension total reached a record high for both automakers in 2011, which concerns investors greatly. In total, Ford will buy out the pensions of 98,000 workers, while General Motors will extend its lump sum pension buyout offer to 42,000.
“There’s no need for us to do it,” Marchionne exclaimed to the press during a visit to an Austin, Texas, Fiat dealership on Monday.
Maintaining the monthly dole
Shrinking market share when compared with foreign-based automakers has investors in U.S. automakers running scared. Maintaining a sufficient level of profitability while continuing to make monthly pension payments has proven to be a bit of an albatross, considering the damage wrought by the recession and automotive bailouts over the past five years, notes The Detroit News.
By the end of 2011, Chrysler as a $32 billion pension obligation on the books, and according to the automaker’s annual filing, pension plans were underfunded by $6.5 billion. For stark matters of comparison, Chrysler’s market value was $7.5 billion at year’s end.
General Motors is reportedly cutting pension liability by $26 billion by offering buyouts to salaried retirees. The rest of its salaried pension plans will be offloaded to Prudential Insurance.
“We view this as a substantial step forward in strategic de-risking by reducing potential future plan volatility,” said Barclays Capital auto analyst Brian Johnson. “GM will retain its pension plan for current salaried workers, but still needs to address unionized retirees.”
Chrysler currently has more than 130,000 retirees that would be impacted by a pension plan payout change. Of those, 30,000 were paid an annual salary, while the rest were hourly workers represented by the United Auto Workers union.
No economic contraction
In spite of the May jobs growth slowdown, Marchionne insists that Chrysler Group has no plans to undergo an economic contraction.
“If I have any concerns about the U.S., it’s the potential impact coming from Europe, but it’s not from internal issues,” he said.