Skip to content
Subscriber Only

U.S. Automakers Cut Retirees Loose

GM and Ford try to tame their costs by buying out retirees’ pensions. The retirees aren’t happy
Patricia Roberts, GM retiree, age 63
Patricia Roberts, GM retiree, age 63Photograph by Daniel Shea for Bloomberg Businessweek

General Motors is offering retiree Rick Knoth a check for more than a half-million dollars and he’s still unhappy. Yes, Knoth plans to take GM’s huge buyout of his retirement benefits, but says he may never buy another car from the company where he worked for 37 years. “During my career I was told I was a valuable member of the GM family,” says Knoth, 60, who retired in 2008 as a manufacturing engineer. “Now they’re saying … ‘Here’s your check, go away.’”

GM and rival Ford Motor, rebounding from their near-death experiences during the financial crisis, are eager to rid their balance sheets of the huge pension obligations that Wall Street views as onerous debts weighing on their credit ratings and stock prices. So this spring they came up with an ambitious solution: buy out the lifetime pension payments due 140,000 salaried retirees. With both carmakers suddenly flush with profits—GM and Ford made $9.2 billion and $20.2 billion, respectively, in 2011—it seems like a smart way to remove decades of uncertainty from their finances. Yet because the buyouts are based on actuarial assumptions about what each retiree’s pension stream is worth using IRS projections about inflation, many ex-employees worry they may outlive their payments.