GM's Pension Fund Problems

Initially, they sold small, fuel efficient and low cost cars as against the large and costly US cars. In 1973, the Yom-Kippur war or The October War broke out between Israel and some of its Arab neighbors, when Israel attacked Egypt and Syria. In retaliation, the Arab members in the Organization of the Petroleum Exporting Countries (OPEC), decided to stop oil supply to countries that supported Israel, and specially targeted the US and the Netherlands.

OPEC used its power and increased the oil prices four times from US$ 3 to US$ 12 per barrel (Refer Exhibit IV for global oil prices between 1970 and 2005). Since the US was the largest consumer of oil in the world, the restrictions created chaos in the US economy...

The amount was greater than GM's advertising costs and was expected to touch US$ 5.6 billion in 2005 (Refer Exhibit V for GM's healthcare costs between 1996 and 2005). After December 2004, GM's future Post Retirement Employee Benefits (OPEB) liabilities reached US$ 77.5 billion from US$ 67.5 billion in 2003.

Apart from these, GM's worldwide pension liability crossed US$ 100 billion (102.4 billion) in December 2003, and out of this, approximately US$ 87.3 billion was for US retirees. These costs had contributed more than US$ 2,000 to the cost of each of the 4.65 million vehicles sold in 2004. At this point, John Devine (Devine), Vice-chairman and CFO of GM remarked, "Healthcare costs are not in our control"...