Troubled Asset Relief Program: Automaker Pension Funding and Multiple Federal Roles Pose Challenges for the Future
Published: 2010-04-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over $81 billion has been committed under the Troubled Asset Relief Program (TARP) to improve the domestic auto industry's competitiveness and long-term viability. The bulk of this assistance has gone to General Motors (GM) and Chrysler, who sponsor some of the largest defined benefit pension plans insured by the federal Pension Benefit Guaranty Corporation (PBGC). As part of GAO's statutorily mandated oversight of TARP, this report examines: (1) the impact of restructuring on GM's and Chrysler's pension plans; (2) the impact of restructuring on auto supply sector pension plans; (3) the impacts on PBGC and plan participants should auto industry pension plans be terminated; and (4) how the federal government is dealing with the potential tensions of its multiple roles as pension regulator, shareholder, and creditor. To conduct this study, GAO interviewed officials at GM, Chrysler, a labor union, a supplier association, the Departments of the Treasury and Labor, and PBGC; and reviewed relevant statutes, reports, and documents concerning the automakers' restructuring and pension plan funding. Treasury and PBGC generally agreed with the report's findings. Their technical comments and the technical comments provided by GM, Chrysler, and Delphi, were incorporated as appropriate.
section_title: What GAO Found
paragraphs: The new GM and the new Chrysler that were established during each company's bankruptcy process in the summer of 2009 assumed sponsorship for all the old companies' U.S. defined benefit plans. Although the pension plans have been maintained, their future remains uncertain. According to current company projections, large contributions may be needed to comply with federal pension funding requirements within the next 5 years. Officials at the Department of the Treasury, which oversees TARP, expect both GM and Chrysler to return to profitability. If this is the case, then the companies will likely be able to make the required payments and prevent their pension plans from being terminated. However, if GM and Chrysler were not able to return to profitability and their pension plans were terminated, PBGC would be hit hard both financially and administratively. In early 2009, prior to the new companies assuming sponsorship, PBGC estimated that its exposure to potential losses for GM's and Chrysler's plans to be about $14.5 billion. Meanwhile, automaker downsizing and the credit market crisis have created significant stress for suppliers and their pensions. During 2009, there was a rise in the number of supplier bankruptcies, liquidations, and pension plan terminations. In July, the nation's largest auto parts supplier, Delphi Corporation, terminated its pension plans with expected losses to PBGC of over $6.2 billion. Across the auto sector as a whole, in January 2009, PBGC estimated that unfunded pension liabilities totaled about $77 billion, with PBGC's exposure for potential losses due to unfunded benefits of about $42 billion, leaving plan participants to bear the potential loss of the $35 billion difference through reduced benefits. Moreover, until Treasury either sells or liquidates the equity it acquired in each of the companies in exchange for the TARP assistance, its role as shareholder creates potential tensions with its role as pension regulator and overseer of PBGC in its role as pension insurer. In particular, tensions could arise if decisions must be made between allocating funds to company assets (thereby protecting shareholders, including taxpayers) or to pension fund assets (thereby protecting plan participants). As GAO reported previously, better communication with Congress and others about TARP interests could help mitigate such tensions.

section_title: Letter
paragraphs: Domestic auto manufacturers remain sponsors of some of the largest  private defined benefit plans in the United States. The fate of these  pension plans affects not only the benefits of current and future auto  company retirees, but also the financial well-being of the Pension Benefit  Guaranty Corporation (PBGC)—the federal corporation that insures  private sector defined benefit plans. During the past year, the U.S.  automotive industry has undergone major restructuring, including the  bankruptcy reorganization of two of the country’s largest auto  manufacturers and re-emergence as new companies—General Motors  Company (GM) and Chrysler Group, LLC (Chrysler)—and the continued  consolidation in the auto supply industry. Since 2008, the federal  government has committed to provide over $81 billion under the Troubled  Asset Relief Program (TARP) to assist the automobile industry. These  funds, along with loans from the Canadian government and concessions  from nearly every stakeholder (including labor unions), were intended to  allow the companies time to restructure to improve their competitiveness  and long-term viability, which is critical to the future of both the  companies and their pension plans. In exchange for this funding, the  federal government acquired partial ownership in and made loans to the  new GM and the new Chrysler that were established during the  bankruptcy process. Treasury’s new role as a shareholder adds an  unprecedented and extraordinary element to the previously established  government responsibilities of regulator and its relationship to PBGC as  insurer.
Under our statutorily mandated responsibilities for providing timely  oversight of TARP, we are continuing to report on the federal  government’s assistance to the U.S. automotive industry. In this report,  we focused on the impact of the recent restructuring on auto industry  pension plans and the government’s role in overseeing those plans and  PBGC’s role in insuring these plans. Specifically, our review focused on  the following questions:  (1)  How has restructuring affected GM’s and Chrysler’s pension plans  and the outlook for the plans going forward? (2)  How has restructuring affected auto supply sector pension plans?  (3)  What are the impacts on PBGC and plan participants should auto  industry pension plans be terminated in the next 5 years? (4)  How is the federal government dealing with the potential tensions  between its multiple roles as pension regulator and insurer, and its  new roles as shareholder and creditor?
To describe how restructuring has affected GM’s and Chrysler’s pension  plans and the plans’ funding going forward, we interviewed officials from  each automaker. They provided us with an overview of their pension plans  as well as a number of documents, including detailed actuarial information  about their PBGC-insured pension plans. We interviewed Department of  Treasury (Treasury) officials who are responsible for overseeing the  assistance to GM and Chrysler (referred to as Treasury’s “auto team”) in  Treasury’s program office for TARP, the Office of Financial Stability.
These officials provided information on Treasury’s involvement in the  restructurings and how it considered future plan funding when structuring  the financing packages for the companies. We interviewed other Treasury  officials, as well as officials at PBGC, and the Department of Labor  (Labor). We also interviewed the International Union, United Automobile,  Aerospace and Agricultural Implement Workers of America (UAW), which  represents a significant number of the participants in the collectively  bargained pension plans, and asked for their views on restructuring efforts  and their effect on pension plans. Additionally, we reviewed materials  related to restructurings, including corporate annual reports and  bankruptcy documents, as well as relevant federal laws and regulations,  and other materials related to defined benefit plans and plan funding, such  as pension consulting briefs.
To describe how restructuring has affected the auto supply sector and its  pensions, we interviewed officials from PBGC, Treasury, and the Motor  and Equipment Manufacturers Association. We also reviewed materials  related to key production parts suppliers in the auto industry, including  corporate annual reports, bankruptcy filings, PBGC press releases, and  industry publications.
To determine the potential consequences of plan termination for PBGC  and plan participants, and to describe the tensions and challenges faced by  the federal agencies responsible for the regulation and oversight of  qualified defined benefit plans, we interviewed officials from GM,  Chrysler, UAW, PBGC, and the board representatives for PBGC’s Board of  Directors, comprised of the Secretaries of Commerce, Labor, and  Treasury, the primary agencies charged with pension regulation and  overseeing PBGC. We requested additional actuarial information from the  automakers in certain instances and reviewed bankruptcy documents  related to the individual automaker restructurings. We also reviewed  relevant federal laws and regulations, and past GAO reports that  addressed the topics of pension plan termination and managing multiple  roles under TARP.
To ensure the technical accuracy of the information contained in the  report, we asked representatives of GM, Chrysler, and Delphi to review  portions of a draft of this report. We conducted this performance audit  between September 2009 and April 2010, in accordance with generally  accepted government auditing standards. Those standards require that we  plan and perform the audit to obtain sufficient, appropriate evidence to  provide a reasonable basis for our findings and conclusions based on our  audit objectives. We believe the evidence obtained provides a reasonable  basis for our findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The domestic auto industry—including automakers, dealerships, and  automotive parts suppliers—contributes substantially to the U.S.  economy, but has faced financial challenges in recent years. According to  the Congressional Research Service, more than 435,000 U.S. automotive  manufacturing jobs have been eliminated since 2000—an amount equal to  about 3.3 percent of all manufacturing jobs in 2008. The employment level  first dipped below 1 million in 2007 and fell to 880,000 workers in 2008.  The Detroit-based automotive manufacturers—GM, Chrysler, and the Ford  Motor Company—have seen their share of the domestic market drop from  64.5 percent in 2001 to 47.5 percent in 2008. Prior to restructuring, GM and  Chrysler reported losses in 2008 totaling $31 billion and $8 billion,  respectively.
subsections: section_title: TARP Assistance for the Auto Sector
paragraphs: Concerned that the collapse of a major U.S. automaker could pose a  systemic risk to the nation’s economy, in December 2008, Treasury  established the Automotive Industry Financing Program (AIFP) under  TARP. Through June 2009, $81.1 billion in AIFP funding has been made  available to assist the auto industry. The largest part of the program’s  funding—about $62 billion—was provided to help GM and Chrysler fund  their operations while they restructured. In exchange for this funding, the  Treasury has become part-owner of the two new companies that re- emerged, receiving 60.8 percent of the equity in the new GM and 9.85  percent of the equity in the new Chrysler, and has a debt interest of about  $14 billion in loans between the two. Given the large taxpayer  investments in GM and Chrysler, in a recent report, we recommended th Treasury report to Congress on how it plans to assess and monitor the  companies’ performance to help ensure the companies are on track to  repay their loans and to return to profitability. In response, Treasury said  the agency intends to develop an approach for reporting on its investments  its goal of  in the auto industry that strikes an appropriate balance between  transparency and the need to avoid compromising either the competitive  positions of these companies or Treasury’s ability to recover taxpayer   More broadly, we also previously recommended that Treasury  funds.  better communicate to external stakeholders, including Congress, about  its TARP strategies and activities to improve the integrity, accountability,  and transparency of the program. In response to this recommendation,  Treasury noted that it was implementing a communication strategy to  provide key congressional stakeholders more current information about  its TARP activities.
AIFP also established the Auto Supplier Support Program—a mechanism  to extend credit to auto suppliers. Under this program, Treasury  committed to fund up to $3.5 billion in loans to special purpose entities  created by new GM and new Chrysler for the purpose of ensuring payment  to suppliers. The program was designed to ensure that automakers receive  the parts and components they need to manufacture vehicles and that  suppliers have access to liquidity on their receivables. According to  Treasury officials, the program will terminate in April 2010.
section_title: Restructuring in the Auto Sector
paragraphs: As a condition of receiving federal financial assistance, GM and Chrysler  were also required to develop restructuring plans to identify how the  companies planned to achieve and sustain long-term financial viability.
Prior to retrctring, GM was ublicly  trded compny tht employed abt  240,000 people worldwide. It hd  mctring fcilitie in 34 contrie nd  old more th dozen nd of vehicle in  abt 140 contrie. GM’ core U.S. nd  re Bick, Cdillc, Chevrolet, nd GMC;  other nd inclded Dewoo, Holden,  Hmmer, Opel, Pontic, Saab, Sarn,  Vauxhll, nd Wling.
To implement the restructuring plans, both companies filed voluntary  petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.  During the bankruptcy process, newly organized companies for both GM  and Chrysler were established in the summer of 2009. These new  companies purchased substantially all of the operating assets of the  previous companies, while the old companies, which retained very few  assets but most of the liabilities, continued in bankruptcy. The new  companies also streamlined operations and substantially reduced their  debt. Changes included reductions in the number of brands and models,  closing factories and dealerships, and reducing their hourly and salaried  workforces through early retirements, buyouts, and layoffs.
GM filed for Chpter 11 bankrptcy protection  on Jne 1, 2009, nd on Jly 5, 2009, the  bankrptcy cort pproved the sale of  subsntilly ll of old GM’ asset to  newly  formed compny, referred to as “new GM.”  The new GM assumed ponorhip of oth of  old GM’ U.S. qualified defined enefit pl.
Prior to retrctring, Chryler was  privtely  held compny tht employed abt 54,000  people worldwide, inclding mctring  fcilitie in for contrie nd vehicle  assemled nder contrct in for other.  Chryler’jor nd inclde Dodge,  Chryler, nd Jeep.
Automakers are highly dependent on a large motor vehicle parts supply  industry. The auto supply chain consists of networks of suppliers,  transportation carriers, fabrication sites, assembly locations, distribution  centers, and locations by which components, services, information and  products flow. The supply chain starts with suppliers who assemble raw  components into more complex components which are processed or  combined with additional components and eventually brought together by  top-level suppliers to manufacture end products for use by the automaker.  Each level in the supply chain depends on the financial health of the other  for its survival.
Chryler filed for Chpter 11 bankrptcy  protection on April 30, 2009, nd on Jne 9,  2009, the bankrptcy cort pproved the sale  of subsntilly ll of old Chryler’ asset to   newly formed compny, referred to as “new  Chryler.” The new Chryler assumed  ponorhip of ll Chryler’ U.S. qualified  defined enefit pl.
The U.S. auto supply sector became unstable as the domestic market share  of the global automotive marketplace declined, prices for raw materials and  petroleum increased, and production cuts ensued. These financial pressures  affected various levels of the supply chain, leading some suppliers to file for  bankruptcy, including the nation’s largest U.S. auto supplier, Delphi  Corporation (a spin off of GM), which filed for bankruptcy in 2005.
section_title: Private Sector Pension Plans
paragraphs: About one-half of all U.S. workers participate in some form of employer- sponsored retirement plan, typically classified either as a defined benefit  or as a defined contribution plan. Defined benefit plans generally offer a  fixed level of monthly retirement income based upon a participant’s salary,  years of service, and age at retirement, regardless of how the plan’s  investments perform. In contrast, benefit levels for those with defined  contribution plans depend on the contributions made to individual  accounts (such as 401(k) plans) and the performance of the investments in  those accounts, which may fluctuate in value. Over the last two decades,  much of the private sector pension coverage has moved away from  traditional defined benefit plans in favor of defined contribution plans and  hybrid defined benefit plans, thereby increasing portability for workers  as they change jobs, but also shifting the risk and burden of financing  retirement from employers to employees.
Domestic automakers sponsor some of the largest private sector defined  benefit plans. According to a financial publication, as of year-end 2007, GM  sponsored the largest defined benefit plans by a considerable margin, with  nearly 60 percent more benefit obligations than the plan sponsor ranked  second: AT&T, Inc. The Ford Motor Company ranked fifth. At the time,  Delphi, the auto supplier that spun off from GM in 1999, ranked 18th.  Chrysler was not included in the publication’s list, but, as of the beginning  of 2008, it had about one-fourth of GM’s benefit obligations, and would  have ranked in the top 10 if its total benefit obligations were included on  this list. Based on data gathered for previous GAO reports, in 2004, the  plans sponsored by GM and Chrysler represented roughly 7 percent of the  liabilities, 7 percent of the assets, and 2.5 percent of the total participants  of the entire defined benefit system. The defined benefit plans that  continue to be sponsored by the new GM and the new Chrysler are  summarized in table 1. Unlike the new GM and new Chrysler, the “new  Delphi” that emerged from Delphi’s bankruptcy reorganization did not  assume sponsorship of the company’s pension plans. After Delphi froze its  hourly pension plan in November 2008, some Delphi hourly employees  began to accrue credited service in the GM hourly pension plan according  to the terms of agreements negotiated with various unions, while other  Delphi employees did not receive similar treatment. PBGC terminated all  six of Delphi’s U.S. qualified defined benefit plans in July 2009.
section_title: Federal Oversight of Private Sector Pensions
paragraphs: Three federal agencies are charged with responsibility for overseeing and  regulating tax-qualified private sector pension plans: the Internal Revenue  Service (IRS), an agency within Treasury; the Employee Benefits Security  Administration, an agency within Labor; and PBGC, a government  corporation. Two overlapping statutory sources provide the basis for this  oversight: the Internal Revenue Code, and the Employee Retirement  Income Security Act of 1974 (ERISA).  These laws specify, among other  things, the standards of fiduciary responsibility for managing these plans,  minimum funding requirements, the requirements for reporting  information to the federal government and plan participants, and plan  termination insurance.
PBGC was created by ERISA in 1974 as a federal guarantor of most private  sector defined benefit plans and currently insures the pension income of  nearly 44 million workers in over 29,000 plans. PBGC is a self-financing  entity, funding its operations through insurance premiums paid by the plan  sponsors, money earned from investments, and funds received from  terminated pension plans. It is governed by a three-member board of  directors consisting of the Secretary of Labor as the Chair, and the  Secretaries of Commerce and Treasury as the remaining members. The  board of directors is ultimately responsible for providing policy direction  and oversight of PBGC’s finances and operations, but the board members  often rely on their representatives to conduct much of the work on their  behalf. Currently, the board representatives for the members are the  Assistant Secretary of Labor for the Employee Benefits Security  Administration, the Under Secretary for Economic Affairs at the  Department of Commerce, and the Assistant Secretary of the Treasury for  Financial Institutions.
PBGC administers two separate insurance programs for private sector  defined benefit plans: a single-employer program and a multiemployer  program.  The single-employer program covers about 34 million  participants in about 28,000 plans.  The multiemployer program covers  about 10 million participants in about 1,500 collectively bargained plans  that are maintained by two or more unrelated employers. If a  multiemployer pension plan is underfunded and unable to pay guaranteed  benefits when due, PBGC will provide financial assistance to the plan,  usually a loan, so that retirees continue receiving their benefits. However,  if a single-employer pension plan is underfunded and certain criteria are  met, the plan sponsor may request termination of the plan (referred to as a  “distress” termination), and PBGC will pay retirees’ benefits as they  become due, up to certain limits as prescribed under statute and related  regulations (see appendix II). PBGC may also initiate an “involuntary”  termination under certain circumstances, such as when the possible long- run loss to PBGC is expected to increase unreasonably if the plan is not  terminated.  As of the end of fiscal year 2009, PBGC had terminated and  trusteed a total of 4,003 single-employer plans.
We designated PBGC’s single-employer pension insurance program as  “high risk” in 2003, including it on our list of major programs that need  urgent attention and transformation. The program remains high risk due  to an ongoing threat of losses from the termination of underfunded plans.  As of September 2009, PBGC had an accumulated deficit that totaled $22  billion, a $10.8 billion increase since September 2008.
section_title: New GM and New Chrysler Assumed Sponsorship of Pension Plans in Restructuring, but Face Future Funding Challenges
paragraphs: As new companies, GM and Chrysler have streamlined their operations  and have substantially less debt than their predecessors; nevertheless, the  future viability of the companies and their pension plans is unclear. The  bankruptcy agreements that provided for establishment of the new  companies specified that they would assume sponsorship of the previous  companies’ U.S. qualified defined benefit plans, and made only one  significant change to pension benefits. However, prior to the change in  sponsorship, many of the pension plans had been closed to new hires or  had ceased benefit accruals. Moreover, since 2008, the funded status of  the pension plans has been declining, and within the next 5 years, both  companies project that, based on current estimates, they may need to  make large contributions to their plans to comply with federal minimum  funding requirements.
subsections: section_title: Restructuring Shifted Sponsorship of GM and Chrysler Defined Benefit Plans with Prior Changes Mostly Intact
paragraphs: As a result of restructuring, sponsorship for all GM and Chrysler U.S.  defined benefit plans shifted to the new companies. But beyond the shift in  sponsorship, the only significant change to pension benefits that occurred  was the elimination of a future pension benefit increase that was to  compensate UAW retirees for increased required contributions to their  retiree health care plans, beginning in 2010. For the most part, the terms  of the restructuring called for current levels of employee benefits— including pension benefits—to remain in place for at least 1 year.  Specifically, the master sale agreements for both companies stipulate that,  in general, union employees are to be provided employee benefits that are  “not less favorable in the aggregate” than the benefits provided under the  employee pension and welfare benefit plans, and contracts and  arrangements currently in place; nonunion employees are to receive  current levels of compensation and benefits until at least 1 year after the  date the agreements are signed.
More significant changes affecting GM’s and Chrysler’s pensions were  made prior to last year’s restructuring. For example, over the past decade,  several of GM’s and Chrysler’s pension plans had been modified or closed  to new hires, or had stopped allowing further benefit accruals. GM’s  salaried plan was closed and benefit accruals ceased for certain  employees, while 4 of Chrysler’s ten plans have been closed to new hires,  and 2 other Chrysler plans have ceased benefit accruals (also referred to  as being “hard frozen”). Nevertheless, new collective bargaining  agreements were put in place in 2007 for both GM’s and Chrysler’s UAW- negotiated plans, calling for annual increases to the pension benefits for  their participants. In addition, both GM and Chrysler had implemented  numerous attrition programs for both union and nonunion employees that  provided various opportunities for early retirement and other types of  added benefits as incentives to help mitigate the effects of downsizing. For  a listing of attrition programs offered by these companies since 2004, see  appendix III.
section_title: Funded Status of GM and Chrysler Pension Plans Has Been Declining
paragraphs: As illustrated in figure 1, the funded status of GM and Chrysler pension  plans has been declining since 2008. This is due, in part, to the economic  downturn, which has brought significant financial stress to many sectors  of the economy, including the auto industry. The significant decline in the  stock market decreased the value of certain assets (such as equities) and  increased the value of others (such as bonds), while low interest rates  tended to increase liabilities. Fluctuations in liabilities may also be   caused by changes to actuarial assumptions or other types of gains and  losses. However, in the case of GM and Chrysler, certain other factors  are at play as we well. ll.
For example, a reduction in the number of workers is one key factor  affecting the funded status of both companies’ plans. Large numbers of  workers have left employment as product lines are eliminated and plants  are shut down. When workers are forced to leave their jobs before  becoming eligible to retire, the liabilities for their expected future benefits  will usually be less than previously recorded. However, for those workers  who are eligible to retire early and choose to do so under the enhanced  provisions of one of the numerous attrition programs, the liabilities for  their expected future benefits will usually be greater than previously  recorded. In other words, more workers will retire early and with more  benefits than previously anticipated in the company’s valuation of future  benefit obligations.
GM began its downsizing even before its TARP-related restructuring  efforts reduced the number of its North American brands from eight to  four. According to a GM news release, approximately 66,000 U.S. hourly  workers left the company under a special attrition program between 2006  and 2009. Often the lump-sum payments and buyouts offered by these  programs were paid from company assets, but when these benefits are  paid from pension assets, there can be an impact on the plan’s financial  status. GM noted that the attrition programs implemented between 2006  and 2009 contributed to an increase of estimated plan obligations during  this period and—along with other factors, such as discount rate changes— played a role in the recent increase in GM’s pension liabilities (see fig. 2).
Similarly, Chrysler’s downsizing efforts also predate TARP. For example,  its decision to eliminate four models within its three primary brands dates  back to November 2007, and the company has implemented various  attrition programs to accomplish this. Due in part to these programs,  over the past few years, Chrysler’s pension liabilities have fluctuated while  plan assets have been declining (see fig. 3). For example, Chrysler’s UAW  plan reported a $900 million increase in liabilities from 2007 to 2008, and  the plan’s 2008 valuation report noted that the cost of special termination  benefits during 2008 were nearly $390 million. Total liabilities for the  Chrysler Pension Plan increased by a smaller margin overall from 2007 to  2008, but the plan’s 2008 valuation report noted that nearly $195 million in  additional costs were being recorded due to special early retirements,  added service costs, and curtailment loss.
Other factors that have affected the funded status of both GM’s and  Chrysler’s plans are the special arrangements made with other companies  in conjunction with acquisitions and divestitures. For example, when an   auto parts supplier, the former Delphi Corporation, was spun off from GM  in 1999, the transaction included a negotiated agreement with various  unions for a benefit guarantee for certain employees in the event that  Delphi’s hourly pension plan would be frozen or terminated. When the  company froze its hourly plan on November 30, 2008, as agreed, GM began  providing covered employees with up to 7 years of credited service in the  GM hourly plan while they continued to work at Delphi. Under this  negotiated benefit guarantee, GM also agreed that upon plan termination,  once PBGC determined the benefit to be paid subject to its guarantee  limits, GM would pay eligible covered employees the difference to “top up”  the benefit to the level provided under Delphi’s hourly plan. Following the  termination of Delphi’s hourly plan in July 2009, GM estimated that the  cost of implementing this benefit guarantee for all covered unions would  be approximately $1.0 billion. In addition to the benefit guarantee for  Delphi employees still in the Delphi hourly plan, in the fall of 2008, GM’s  hourly plan assumed responsibility for $2.7 billion in liabilities and $0.6  billion in assets from Delphi’s plan, thereby increasing the GM plan’s  funding deficit by $2.1 billion.
When Chrysler was sold by Daimler in 2007, the transaction included an  agreement with Daimler to help protect the funded status of Chrysler’s  pension plans. As part of this transaction, PBGC negotiated an agreement  whereby Daimler provided a $1 billion termination guarantee and Chrysler  made $200 million in additional pension contributions. Subsequently, in  April 2009, this agreement was replaced by a new arrangement requiring  Daimler to begin making annual contributions, even though the plans had  not terminated. Under this arrangement, Daimler agreed to make  payments totaling $600 million to Chrysler’s pension plans over a 3-year  period, with $200 million due in June 2009, 2010, and 2011. In addition, if  the Chrysler pension plans were to terminate before August 2012 and are  trusteed by PBGC, Daimler is to pay an additional $200 million to the  PBGC insurance program.
section_title: Both Automakers Project Large Contributions to Plans Will Be Required within the Next Five Years
paragraphs: Although projections of plan funding are inherently sensitive to underlying  assumptions, GM and Chrysler currently estimate that they may need to  make large contributions to their pension plans within the next 5 years in  order to meet minimum funding requirements. They also may need to  manage the funded status of their plans in order to avoid certain plan  benefit restrictions and potential additional liabilities that may occur if the  plans are determined to be “at risk.”
While useful as indicators of the financial pressures that could lie ahead,  the funding projections provided by GM and Chrysler are subject to much  uncertainty because of factors that could result in changes in the size or  timing of needed contributions to meet future years’ funding requirements.  For example, projections are particularly sensitive to the future economic  environment, especially with respect to future interest rates and asset  returns. Also, GM or Chrysler could make additional voluntary  contributions to their plans, or funding rules could be affected by changes  in legislation.
To strengthen pension funding, the Pension Protection Act of 2006 (PPA)  made sweeping changes to plan funding requirements, effective for plan  years beginning in 2008. For example, the act included provisions that  raised the funding targets for defined benefit plans, reduced the period for  “smoothing” assets and liabilities, and restricted sponsors’ ability to  substitute credit balances for cash contributions. At the same time, as we  have reported previously, the act did not fully close potential plan funding  gaps, and it provided funding relief to plan sponsors in troubled  industries. In addition, in the face of a weakened economy, the Worker,  Retiree, and Employer Recovery Act of 2008 provided plan sponsors with  further relief from the changes, as did IRS guidance in 2009 concerning  interest rates that could be used to value plan liabilities in some cases.
Legislative proposals that would make additional changes to funding  requirements are currently being considered.
Nevertheless, according to GM’s projections utilizing valuation methods  defined under PPA, large cash contributions may be needed to meet its  funding obligations to its U.S. pension plans beginning in 2013 (see fig. 4).  GM officials told us that cash contributions are not expected to be needed  for the next few years because it has a relatively large “credit balance”  based on contributions made in prior years that can be used to offset cash  contribution requirements that would otherwise be required until that  time. As of October 1, 2008, GM had about $36 billion of credit balance in  its hourly plan and about $10 billion in its salaried plan. However, once  these credit balances are exhausted, GM projects that the contributions  needed to meet its defined benefit plan funding requirements will total  about $12.3 billion for the years 2013 and 2014, and additional  contributions may be required thereafter. In its 2008 year-end report, GM  noted that due to significant declines in financial markets and  deterioration in the value of its plans’ assets, as well as the coverage of  additional retirees, including Delphi employees, it may need to make  significant contributions to its U.S. plans in 2013 and beyond.
Similarly, Chrysler’s management expects that contributions to meet  minimum funding requirements may begin to increase significantly in 2013,  but are projected to be relatively minimal until then (see fig. 5). Chrysler,  like GM, intends to use credit balances to offset the contribution  requirements for some of its plans. As of end-of-year 2009, Chrysler had  credit balances of about $3.5 billion for its UAW Pension Plan and about  $1.9 billion across the other eight plans for which it provided funding  information. In addition, Chrysler also has $600 million in payments from  Daimler to help meet its funding requirements over the next few years.  Nevertheless, Chrysler’s funding projections reveal that about $3.4 billion  in contributions may be needed to meet its funding requirements over the  2009 to 2015 period.
In addition, both GM and Chrysler may need to manage the funded status  of their plans in order to avoid incurring an “at-risk” status or triggering  certain benefit restrictions. If a plan’s funding level falls below certain  specified thresholds, then it must use special “at-risk” actuarial  assumptions to determine its minimum funding requirements and, in most  cases, increase its contributions. For example, the most recent annual  funding notice for the GM hourly plan reveals that the plan is in at-risk  status for plan year 2008.
Also, if a plan’s funding level falls below certain specified thresholds, then  certain restrictions may be placed on the benefits provided by the plan,  such as lump sum withdrawals and plant shutdown benefits (see table 2).
section_title: Economic Stress in Auto Industry Has Endangered Auto Supplier Pensions
paragraphs: Automaker restructuring, the credit market crisis, and the global recession  have created significant economic stress across the auto supply industry.  Federal efforts to aid the supply sector through a program that provided  GM and Chrysler with funding to guarantee supplier payments benefited  the automakers’ top-level direct suppliers, but did little to support  component and raw material suppliers. The restructuring of GM and  Chrysler amid this difficult economic environment has had a ripple effect  throughout the auto supply sector, likely contributing to the recent wave  of supplier bankruptcies and pension plan terminations.
subsections: section_title: Automaker Restructuring and Current Economic Conditions Have Created Significant Financial Stress for Suppliers
paragraphs: The auto supply sector is highly dependent on the success of the  automakers that it supplies. For years, the auto supply sector has felt the  impact of the problems facing the domestic auto market, including  declining vehicle sales, and deep production cuts—resulting in  overcapacity within the industry. In 2004, the Department of Commerce  reported that the possibility of relying on increased auto sales that  automatically translate into increased orders and components for U.S.  suppliers no longer existed because U.S. automobile manufacturers had  shifted from providing a ready market for many domestic suppliers of  parts and components to operating on a global basis. The result of this  shift was that automotive parts suppliers had to find niches in the global  supply chains of U.S. auto companies or their foreign competitors to  succeed.
Many auto suppliers broadened their sales base to remain competitive.  With the domestic share of the market in decline, these suppliers  diversified their business models to include just-in-time manufacturing  capacity or sold their products to multiple automakers in North America,  Europe, and Asia. For example, at the time it filed for bankruptcy, the U.S.  auto parts supplier, Delphi Corporation, employed more than 185,000  workers in 38 countries in 2004, making it one of the largest suppliers in  the world. Still, according to a 2009 industry report, just 7 of the 29 U.S.- based suppliers listed among the top 100 global suppliers sold the majority  of their products in North America. Suppliers serving the large U.S.  automakers also have considerable overlap, with as many as 80 percent  supplying parts to one or more automaker. For example, Chrysler reported  that 96 percent of its top 100 suppliers also served either GM or Ford.  Similarly, 27 of GM’s top 39 suppliers also served as major suppliers for  Chrysler. While this crossover allowed suppliers to spread their risk  among domestic automakers, the impact of the global economic downturn  affected many suppliers, and left suppliers that sold primarily to GM and  Chrysler particularly vulnerable when the automakers filed for  bankruptcy.
The recent global credit crisis and the rapid decline in auto sales left many  of the nation’s auto parts suppliers under significant stress with limited  access to credit and facing growing uncertainty about their future business  prospects. For example, GM’s and Chrysler’s decision to slow production  by temporarily shutting down some U.S. operations in late 2008 led to  interruptions in suppliers’ operations and cash flow. As a result, many  suppliers were left with excess inventory, were not paid for products they  had shipped to automakers, and lacked the liquidity needed to settle their  debts with their raw material and component suppliers. Concerns over the  ability of the organizations to continue operations and, among other  things, collect their receivables and pay their bills when due, led some  suppliers to receive a “going concern” qualification from their auditors.   Lenders restricted credit and cash flow to suppliers, limiting their liquidity  at the time when it was needed most. With limited cash flow, the suppliers  experienced increasing pressure from their raw material and component  suppliers. According to Chrysler, 43 percent of its suppliers had received  requests from their suppliers for some form of payment term compression.  Chrysler recognized the liquidity shortfall in the supplier network as a  significant threat to its successful restructuring, and identified supplier  insolvencies and supply chain disruptions as key risks to the critical  assumptions in its restructuring plan. Another industry report indicated  that at least 500 suppliers in North America (or 30 percent of the estimated  1,700 direct suppliers in the U.S.) may be at high risk of insolvency due to  the effect of reduced volumes and the lack of credit availability. This  credit crunch also affected bankrupt companies, which found securing  financing to restructure their companies increasingly difficult.
section_title: Federal Assistance Program Helped Avert Catastrophe, but Provided Limited Support to Smaller Suppliers
paragraphs: In an effort to help stabilize the auto supply base, in March 2009, also  under TARP, Treasury established the Auto Supplier Support Program,  which initially dedicated up to $5 billion in government-backed guarantees  to GM and Chrysler for supplier payments in order to give suppliers the  confidence they needed to keep shipping parts, paying their employees,  and continuing operations. Treasury had rejected appeals from the auto  supply sector for direct aid to assist a broader portion of the supplier  industry because, according to Treasury officials, it had become clear that  the vast network of suppliers had to engage in a substantial restructuring  and capacity reduction to achieve long-term viability. The program was to  ensure that GM and Chrysler received the parts and components they  needed to manufacture vehicles and suppliers had access to credit from  lenders. Under the program, any supplier that shipped directly to GM or  Chrysler on qualifying commercial terms could be eligible to participate.  Treasury left it up to the automakers to determine which suppliers  qualified for the assistance. According to GM, 74 percent of its 1,300  suppliers were eligible for the program, but only 28 percent of its suppliers  (38 percent of its eligible suppliers) received funds under the program.   Nearly half of the $947.8 million in program funds that GM dispersed went  to 31 of its top 40 suppliers. Shortly after the program began, Treasury  reduced the amount of funding available under this program to $3.5 billion,  at the request of the automakers. According to Treasury officials, the  automakers made this request because conditions had changed: they no  longer needed to maintain their prebankruptcy supply capacity, credit  markets had opened up, and suppliers’ access to capital had improved.
The program, as administered, helped a portion of the industry survive the  downturn in production and vehicle sales, but did little to improve  supplier access to traditional sources of capital, according to a leading  auto supply industry group. The group noted that the program supported  suppliers by making funds available to purchase receivables for parts  already shipped by participating suppliers, but that many troubled  suppliers who had no outstanding debts to the automakers were excluded.  According to Treasury officials, the program was not designed to address  liquidity for troubled suppliers who were unable to move their inventory  and had no receivables, including from GM and Chrysler, due to the  extended shutdowns at the manufacturing plants. However, the group also  noted that the suppliers who participated in the program were generally  satisfied with the outcome, and that the supply sector as a whole believed  that without the government’s action, the effect of automakers’  restructuring would have been catastrophic for suppliers.
section_title: Suppliers Have Experienced a Wave of Bankruptcies and Pension Plan Terminations
paragraphs: Bankruptcy reorganizations and liquidations occur frequently in the  volatile automotive supply sector, but the number of bankruptcies has  recently increased. Some suppliers have gone bankrupt multiple times in a  decade, while other suppliers have remained in bankruptcy proceedings  for years before successfully emerging as a new entity. For example, the  “new Delphi” (Delphi Automotive, LLP) emerged in 2009 after the former  Delphi had been in bankruptcy proceedings for 4 years. Auto suppliers  experienced a rise in the number of bankruptcies, liquidations, and  pension plan terminations in 2008 and 2009. In November 2009, a survey  by the Original Equipment Suppliers Association (Association)—a leading  auto supply industry group—found that a majority of suppliers anticipated  a 20 percent decline in their revenue and operating profits on a year-to- year basis. The Association also reported that at least 43 U.S. based auto  suppliers had filed for Chapter 11 bankruptcy protection between January  and December 2009. Moreover, it was reported that an additional 200 U.S.  suppliers had begun the liquidation process by selling off their assets to  other suppliers or private equity companies. Chrysler reported that the  proportion of its suppliers that were financially troubled had more than  doubled, from 10 percent in October 2008 to 22 percent in February 2009,  with the troubled suppliers accounting for $6.6 billion of the company’s  annual business. In addition, in the summer of 2009, a consultant group  estimated that as many as 30 percent of North American suppliers were at  high risk of failure. According to Treasury officials, many of Chrysler’s  troubled suppliers had difficulty accessing credit because of their  concentrated exposure to Chrysler.
In the summer of 2009, the auto supply sector was also expected to shrink  significantly through mergers and consolidation in order to survive.  According to the Association’s survey of its membership in June 2009, auto  suppliers were operating at 46.4 percent capacity. In its restructuring plan,  Chrysler stated that industry conditions required substantial and  coordinated restructuring of the supply base, and that automakers must  concentrate their business in “surviving” suppliers. GM projected a 30  percent reduction in the number of suppliers, stating that such  compression would allow GM to build and manage a competitive supply  base. Several industry consultants noted that the path to long-term  viability would require suppliers to reduce their number by 30 to 40  percent and secure more business from Asian and European transplant  automakers. However, by early 2010, there were signs that the economic  conditions for suppliers may have begun to stabilize. The Association’s  January 2010 and March 2010 surveys of its membership reported  increased optimism across the sector, especially among larger companies.
Many U.S.-based auto suppliers sponsor defined benefit plans that are  insured by PBGC. Each company failure could potentially result in PBGC  having to assume responsibility for its pension plans, and PBGC officials  told us that they are monitoring about 35 large auto suppliers. Even before  last year’s restructuring of GM and Chrysler, suppliers (like many other  employers) were experiencing significant underfunding of their defined  benefit plans. Table 3 shows 18 auto suppliers we identified that reported  a combined $14.9 billion in unfunded pension liabilities in 2008.
In 2009, several of GM and Chrysler’s suppliers filed for bankruptcy, and in  some cases, PBGC intervened and assumed trusteeship of the companies’  defined benefit plans. For example, in July 2009, PBGC terminated and  assumed responsibility for the pension plans of 70,000 workers and  retirees of the former Delphi Corporation, citing Delphi’s inability to afford  to maintain the plans. More specifically, according to PBGC officials, the  key factors that led to this action were Delphi’s failure to fund its pensions  during bankruptcy, and the company’s imminent sale and liquidation of its  assets as it left bankruptcy protection. Other suppliers avoided  bankruptcy, but still felt the effects of the slumping auto industry. For  example, American Axle and Manufacturing Holdings, Inc., an auto part  supplier that narrowly averted bankruptcy in 2009, estimated that the GM  and Chrysler factory shutdowns had cost the company $100.6 million in  sales and $29.3 million in operating income.
While some recent reports have indicated that the outlook for the  automakers and suppliers may be improving, the ability of suppliers to  fund their defined benefit plans in the future will rest, in part, on the  continued viability of the automakers. Moreover, any revival in the auto  supply sector may come too late for workers who have already had their  pension plans terminated and their benefits reduced to the PBGC benefit  guarantee levels.
section_title: Both PBGC and Plan Participants Incur Losses when Underfunded Plans Are Terminated
paragraphs: When an underfunded defined benefit plan is terminated, the PBGC bears  the costs of any unfunded liabilities up to the guaranteed benefit amounts  defined by ERISA, while plan participants bear the loss of benefits beyond  these guaranteed amounts that would go unpaid. According to Treasury  officials, there is no indication that any of GM’s or Chrysler’s defined  benefit plans will be terminated. Nevertheless, to hypothetically examine  the potential impact if their plans were to be terminated, we explored how  PBGC and plan participants would have been affected had the plans been  terminated when these companies filed for bankruptcy in 2009, and the  factors at play that could change that picture if the plans were to be  terminated 5 years later.
subsections: section_title: PBGC’s Exposure Signals Potential Impacts on Both its Deficit and its Resources
paragraphs: Following the termination of an underfunded defined benefit plan, PBGC  generally incurs losses that affect its deficit, as well as its resources. With  respect to its deficit, the amount of loss to the single-employer fund is  equal to the value of the unfunded guaranteed benefits required to be paid  under ERISA. Although this is generally considerably less than the total  value of unfunded liabilities in a large auto sector pension plan, the loss  can still be substantial. With respect to its resources, PBGC must assume  responsibility for administering the terminated plan, including continuing  benefit payments to retirees, determining the assets and liabilities of the  plan as of the date of termination, calculating the guaranteed and  nonguaranteed benefit amounts owed each participant in the plan, and  keeping participants informed. When plans are large and complex, this can  be an enormous task, requiring years to complete.
subsections: section_title: PBGC’s Deficit-Related Exposure
paragraphs: Each year, PBGC assesses its exposure to losses from underfunded  pension plans sponsored by financially weak companies. Its estimates of  exposure are based on companies with credit ratings below investment  grade or that meet one or more of the criteria for financial distress. PBGC  classifies the plans sponsored by these companies as “reasonably  possible” terminations. At the end of fiscal year 2009, PBGC estimated  that its exposure from reasonably possible terminations was  approximately $168 billion, up from $47 billion a year earlier. A  significant part of this increase was due to the dramatic increase in  exposure related to manufacturing, which PBGC attributed primarily to  changes in the auto industry, as well as primary and fabricated metals (see  fig. 6).
In May 2009, PBGC reported that unfunded pension liabilities across the  auto industry as a whole totaled about $77 billion as of January 31, 2009,  and accounted for about $42 billion of PBGC’s total exposure of $168  billion. This means that, should all the auto industry’s underfunded plans  insured by PBGC be terminated and trusteed, PBGC would be required to  cover about $42 billion of the benefit amounts promised, adding to its  deficit. Between the end of fiscal years 2008 and 2009, the deficit in  PBGC’s single-employer insurance program doubled in size from $10.7  billion to $21.1 billion. Should all the underfunded auto industry plans  fail, PBGC’s January 2009 estimate indicated that its end of fiscal year 2009  deficit could triple in size. An increase of this magnitude would have  implications not just for PBGC’s accumulated deficit, but for its overall  funding going forward, as the auto industry is responsible for contributing  a significant portion of PBGC’s premiums each year. According to PBGC’s  most recent data book, the motor vehicle equipment industry accounted  for about 1.2 percent of all insured plans under the single-employer  insurance program in 2007, but 6.1 percent of all insured participants and  7.3 percent of all premiums.
With respect to PBGC’s exposure for GM’s and Chrysler’s pension plans in  particular, PBGC calculated its potential exposure prior to when the new  companies assumed sponsorship of the plans. Before the change in  sponsorship, PBGC estimated that its exposure for GM’s unfunded  guaranteed benefits would be about $9.0 billion, and that its exposure for  Chrysler’s unfunded guaranteed benefits would be about $5.5 billion (see  table 4).
Even without the change in sponsorship, actual losses to PBGC could be  substantially different, as estimates of exposure are inherently difficult to  calculate. For example, the significant volatility in plan underfunding and  sponsor creditworthiness over time makes long-term estimates of PBGC’s  expected claims difficult. Moreover, there is a time lag in making these  estimates. Estimates of exposure are generally based on company reports  filed as of December 31 of the previous year. Thus, the dramatic increase  in PBGC’s aggregate reasonably possible exposure between fiscal years  2008 and 2009 depicted in figure 6 was primarily due to the deterioration  of credit quality and poor asset returns that occurred during calendar year  2008. Subsequent changes in economic conditions (such as the steady rise  in equity returns since March 2009) were not yet reflected in these  estimates. In addition, actual losses due to terminated plans depend on  PBGC’s liability only for unfunded guaranteed benefits, but this is not  factored into the estimates because it is difficult to determine the extent  and effect of the limits on guaranteed benefits prior to actual termination.
However, PBGC’s exposure for unfunded guaranteed benefits in the auto  supply sector has already begun to materialize. Over the past year, the  plans of several large suppliers were terminated and trusteed by PBGC,  and PBGC estimates that the unfunded guaranteed benefits that it will be  required to pay to participants in the plans of these large suppliers will  exceed $6.6 billion (see table 5). The estimate for the pension plans of the  former Delphi Corporation alone is over $6.2 billion.
To help protect against further exposure, according to PBGC’s 2009 annual  report, the agency was continuing to monitor the auto industry and  negotiate settlements for additional pension protections in several auto- related corporate downsizing cases. For example, in the case of Visteon  Corporation, a large automotive supplier, PBGC negotiated an agreement  in January 2009 that required Visteon to provide over $55 million in  additional protections to workers at closed facilities by making cash  contributions to the plan, a letter of credit to PBGC, and a guaranty by  certain affiliates of certain contingent pension obligations. Similarly, in the  case of Cooper Tire & Rubber Company, PBGC negotiated a deal in August  2009 that required the plan sponsor to strengthen the plan by $62 million,  in connection with a plant closing in Albany, Georgia. According to PBGC,  such protections can help prevent plan termination or, in the event that  the plan does terminate, reduce the losses to the insurance program and  participants.
section_title: PBGC’s Resource-Related Exposure
paragraphs: If PBGC were to become trustee of GM’s and Chrysler’s auto plans, the  impact on its resources would be unprecedented. As illustrated in figure 7,  the number of participants and trust fund assets that PBGC is responsible  for managing would increase dramatically. Moreover, in addition to their  sheer size, these plans have many of the characteristics that contribute to  complexity and delays in processing, such as a history of mergers,  complicated benefit formulas, movement of participants and assets across  plans, and large numbers of participants subject to one or more of the  legal limits on guaranteed benefits.
Among plans terminated and trusteed by PBGC, the average number of  participants per plan is just under 1,000, but most of GM’s and Chrysler’s  plans far exceed this average. For example, as of the end of September  2008, GM’s hourly plan had over 500,000 participants, and its salaried plan  had nearly 200,000. Based on counts as of the beginning of 2008 (the most  recent available), Chrysler’s UAW Plan had about 135,000 participants, and  the Chrysler Pension Plan had about 44,000 participants. Only two of  Chrysler’s ten plans had less than 1,000 participants. Taken together, the  number of participants in these two companies’ pension plans is equal to  about 40 percent of all the participants in all the plans terminated and  trusteed by PBGC since the agency was established in 1974. Even more  striking, taken together, the amount of assets in these two companies’  pension plans exceeds—by a considerable margin—the total amount of  assets that PBGC is currently managing for all the plans it has trusteed  combined (see fig. 6).
In addition to their large size, GM’s and Chrysler’s plans have many of the  characteristics that, as delineated in a previous report, contribute to  complexity and delay in processing. For example, both GM and Chrysler  have long histories of acquisitions, mergers, and divestitures, stretching  over the past century (see appendix V). To determine the potential impact  on any current or future retirees or beneficiaries of the plan,  documentation concerning each change must be obtained, along with data  about any affected employees. An employee’s movement from one plan to  another also can cause complexity in benefit calculations. Even within a  plan, tiers can be created that treat some employees differently and make  benefit calculations more complicated. For example, at both GM and  Chrysler, different formulas were created for employees based on such  things as the date employees began participating in their plans or whether  or not they contributed to their plans.
Delays also result when PBGC must adjust participants’ benefits to comply  with legal requirements. PBGC guarantees participants’ benefits only up to  certain limits, specified under ERISA and related regulations. Among  GM’s and Chrysler’s plans, certain provisions and characteristics of  participants suggest that many would likely be subject to one or more of  these limits should the plans be terminated, as discussed further in the  next section. Recent changes in the law added new provisions concerning  the treatment of certain events, such as plant shutdowns and attrition  programs (referred to as “unpredictable contingent events”). PBGC has  begun to grapple with some of these complexities following the  termination of the Delphi plans, as many of the benefits provided by the  Delphi plans reflect negotiations with UAW and are similar to benefits  provided by UAW plans across the auto sector.
In its 2009 annual report, PBGC noted that it has been taking steps to  prepare for the possible trusteeship of large auto industry plans by  defining the changes to its infrastructure that would be needed to handle  the increase in workload. The types of changes examined as part of this  effort included expanded contracts, additional staff, and increased  capacity in its information technology system.
section_title: High Earners and Early Retirees Are Most At Risk for Reduced Benefits
paragraphs: When ERISA’s guarantees do not cover all pension benefits promised by  an underfunded plan that is terminated, those participants whose benefits  are reduced share in the losses from the plan’s termination. In many cases  involving terminated and trusteed plans, participants’ full benefit amounts  are guaranteed and their benefits are not reduced as a result of the  termination. But in cases involving complex plans with generous benefit  structures such as GM’s and Chrysler’s, large numbers of participants are  likely to have benefits subject to the guarantee limits and, depending on  the extent of plan underfunding at termination, these participants would  be at risk of having their benefits reduced as a result. When PBGC  calculated its exposure across the auto sector as a whole in January  2009—prior to the shift in sponsorship of GM’s and Chrysler’s plans to the  new companies—PBGC estimated that about $35 billion in unfunded  liabilities would be nonguaranteed benefits; that is, plan participants  would bear losses for about $35 billion in benefits not funded by the  company and not guaranteed by PBGC if all the at-risk underfunded plans  across the sector were terminated. Of this $35 billion, about half ($18  billion) was attributable to GM’s plans, and another $5 billion was  attributable to Chrysler’s plans.
Participants most often affected by the application of guaranteed benefit  limits are high earners whose benefits exceed the maximum limit, those  who take early retirement, and those whose benefits increased due to  recent plan amendments. We were unable to obtain precise data on the  number of GM and Chrysler plan participants whose benefits might be  reduced due to these limits; however, GM and Chrysler pension plans  provide several options for early retirement, with supplemental benefits to  those who retire before age 62 as a bridge to Social Security benefits.  Under one type of guarantee limit (the accrued-at-normal limit), any  supplements being provided to retirees as of the date of plan termination,  and any supplements to be provided to future retirees, would not be  guaranteed. According to PBGC officials, a significant number of GM and  Chrysler participants could be vulnerable to having their benefits reduced  due to this limit should the pension plans be terminated. In addition,  retirees whose benefits reflect increases in the 5 years prior to the date of  plan termination could be subject to another type of guarantee limit (the  phase-in limit). For example, if GM’s and Chrysler’s plans had been  terminated in 2009, this limit would have affected the increases in benefits  provided in the 2007 UAW contracts negotiated with both GM and  Chrysler, causing only a part of those increases to be guaranteed. The  increases included as benefit enhancements offered as part of recent  attrition programs would be subject to the phase-in limit, as well.
Although many participants would likely lose some portion of their  nonguaranteed benefits if the automakers’ plans were terminated, not all  would be at equal risk. This is because when a pension plan is terminated  and trusteed by PBGC, ERISA specifies that the remaining assets of the  plan and any funds recovered for the plan from company assets be  allocated to participant benefits according to a certain priority order (see  appendix VI). Due to this allocation process, if GM and Chrysler plans  were terminated, participants who were retired (or eligible to retire) for at  least 3 years would be most likely to have some or all of their  nonguaranteed benefits paid, while those participants who retired early— especially those who retired under one of the special attrition programs— would be most at risk for having their benefits reduced.
section_title: Passage of Time Would Shift Termination Losses for PBGC and Plan Participants
paragraphs: The exposure to loss from plan termination would shift over time, but it is  unclear whether PBGC or plan participants would be better off as a result.  Hypothetically, if plans were to terminate 5 years into the future—in 2014  instead of 2009—overall losses could either increase or decrease, and how  those losses would be shared between PBGC and plan participants would  likely shift as well. For example, plan assets could grow or diminish over  time, depending on investment returns and employer contributions. Plan  liabilities could also grow or diminish over time, depending on interest  rates, ages of participants, and whether benefits are revised in future  years. In addition, more participants could acquire vested benefits over  time, increasing liabilities; while more benefits would have been paid over  time, decreasing liabilities.
How the losses due to unfunded benefits would be shared between PBGC  (for guaranteed benefits) and plan participants (for nonguaranteed  benefits) could also shift over time. For example, participants’ monthly  amount of guaranteed benefits would increase over time for three main  reasons: (1) more workers would be eligible to retire with more generous  benefits, based on years of service; (2) the maximum limits are updated  each year and thus would increase, and people would grow older, so the  cutbacks due to this limit would grow smaller; and (3) the benefit  reductions due to the phase-in limit would be phased out. This increase in  the monthly amount of guaranteed benefits would tend to shift costs from  participants to PBGC. Meanwhile, over time, more participants will have  been retired (or eligible to retire) for 3 years or more, and thus have  benefits eligible for higher priority status in the asset allocation process.  In addition to shifting the distribution of benefits to be paid among  different groups of participants, this could also cause more of the plan’s  remaining assets to be allocated to guaranteed benefits within this priority  category, with less available to cover nonguaranteed benefits, resulting in  a shift in costs from PBGC to plan participants.
Taking all these factors into account, it is unclear whether the passage of time  would increase or decrease the overall cost of unfunded guaranteed benefits  to be paid by PBGC compared with the loss of unfunded nonguaranteed  benefits to be borne by plan participants. Clearly, improvements in the  financial well-being of the companies and their pension plans would serve the  best interests of both PBGC and plan participants.
section_title: Balancing Multiple Federal Roles May Create Tensions and Challenges
paragraphs: As a result of GM’s and Chrysler’s restructuring, the federal government  has assumed new roles vis-à-vis the automakers as part-owner and lender,  in addition to its traditional role as pension regulator. On behalf of the  U.S. taxpayer, Treasury has an interest, as a shareholder, in the financial  well-being of the companies, as well as the viability of their pension  plans. These interests may diverge at times. Although Treasury has  established policies designed to separate these interests, the perception of  a conflict could arise, for example, should choices need to be made  regarding the allocation of funds from the companies to their pension  plans.
subsections: section_title: Treasury Has Established Various Structures to Mitigate Any Risk Related to Conflicts
paragraphs: Under normal circumstances, transparency and disclosures to the public  related to agency actions can often mitigate risks related to conflicts of  interest. But, in this case, because this involves private companies and  business sensitive information, Treasury is less able to rely on transparency  and disclosure in its dealings with the automakers to mitigate any potential  conflicts of interest. Nevertheless, as we have previously reported, what  Treasury’s goals are for its investment in Chrysler and GM, among other  things, is important information for Congress and the public to have.  Although Treasury provides public information on TARP activities,  including AIFP, through its legally mandated monthly reports to Congress,  transaction reports, and others, these reports do not provide information on  the indicators Treasury may use in assessing the goals for its auto  investments and the status of the automakers’ pensions. Identifying these  indicators for Congress, and sharing as much of this information as possible,  while still respecting the sensitivity of certain business information, could  help Congress and the public better understand whether the investment in  the auto companies has been successful and help mitigate potential or  perceived conflicts of interest.
Recognizing the potential for interested parties to perceive conflicts,  Treasury has taken several other steps to mitigate its risk. First, to guide  its oversight of the investments going forward and limit its involvement in  the day-to-day operations of the companies, Treasury developed four core  principles: (1) acting as a reluctant shareholder, for example, by not  owning equity stakes in companies any longer than necessary; (2) not  interfering in the day-to-day management decisions; (3) ensuring a strong  board of directors; and (4) exercising limited voting rights. According to  Treasury officials, use of these core principles defines the operating  boundaries of the federal role within its ownership context by limiting the  reach and ability of the government to exert its powerful influence on the  business and operational matters of these companies. Officials noted that  the core principle of not interfering in day-to-day decisions has been  particularly helpful in dealing with political pressures related to business  operations. For example, officials said that Treasury’s auto team received  about 300 congressional letters in 2009 regarding day-to-day management  issues involving GM and Chrysler. Several of these letters asked about  company decisions and strategies, or called on Treasury to exert influence  on the companies’ business decisions. Some letters lobbied either in favor  of or against a certain practice or activity. Other letters have been passed  along on behalf of  a particular constituent concern. Treasury officials said  that, because of their core principle, most of the time they can simply  reply to such letters by reiterating their policy of not getting involved with  the companies’ business decisions, and as a result, they have been able to  avoid having to respond to these pressures.
Second, to implement these core principles, Treasury established a  protective barrier between the Treasury officials (beneath the Secretary  level) who make policy-related decisions with respect to investments in  the automakers and the Treasury officials who are responsible for  regulating pensions or overseeing the operations of PBGC. In theory, this  barrier prevents Treasury in its role as owner from interacting with  Treasury in its role as pension regulator or overseer of PBGC. Treasury  officials stated that, in the management of its investment in GM and  Chrysler, the Treasury auto team does not communicate with the IRS or  PBGC.
Given the importance of balancing its competing interests as regulator and  part-owner, and mitigating the appearance of conflicts between these  interests, it is essential that Treasury ensure that it has an adequate  number of staff with the appropriate skills and expertise to carry out its  various tasks. Because of earlier reductions in the number of Treasury  staff working on the AIFP and Treasury’s stated plans to disband the team  focused exclusively on managing Treasury’s stake in the auto industry, we  recently recommended that Treasury ensure it has the expertise needed to  adequately monitor and divest the government’s investments in Chrysler  and GM. We believe that ensuring sufficient staffing continues to be  essential, particularly in light of the circumstances discussed here.  Subsequent to our making this recommendation, Treasury officials said  they hired two additional analysts dedicated solely to monitoring  Treasury’s investments in Chrysler and GM, and planned to hire one more.
section_title: Despite These Efforts, Tensions May Remain
paragraphs: The steps taken to mitigate any risks likely to result should conflicts of  interest arise—adoption of the core principles and establishment of a  protective barrier—may help, but the tensions inherent in Treasury’s  multiple roles remain. This can be illustrated by the conflicting pressures  that would likely be brought to bear in two critical and interrelated  contexts: (1) how to respond to a decline in pension funding; and (2) how  to decide when to sell the government’s shares of stock.
Treasury officials told us they expect both GM and Chrysler to return to  profitability. If this is the case, and the companies are able to make the  required contributions to their pension plans as they become due, then  Treasury’s multiple roles are less likely to result in any perceived conflicts.  However, if the funding of any of GM’s or Chrysler’s defined benefit plans  declines below certain funding levels set out in statute, the company may  request a waiver—that is, request permission from IRS (within Treasury) to  reduce its required contributions to its plans over an extended period.  Despite Treasury’s protective barrier and the autonomy of IRS to grant or  refuse such a waiver request apart from any influence from other units  within Treasury, some may still perceive a possible tension between  Treasury’s interest in the value of its shareholder investment and Treasury’s  interest, through its oversight of PBGC, in ensuring the viability of the  pension plans.
In addition, Treasury has been clear that it wants to divest its shares as soon  as practicable, but it must weigh a variety of factors when making the  decision about when and how this should happen. Treasury officials said that  on the basis of their analysis of the companies’ future profitability, they  believe that both GM and Chrysler will be able to attract sufficient investor  interest for Treasury to sell its equity. However, circumstances that may  appear advisable as to the best time to sell from a shareholder perspective— that is, which would maximize the return on the taxpayer’s investment— could be at odds with the best interests of plan participants and beneficiaries.  For example, Treasury could decide to sell its equity stake at a time when it  would maximize its return on investment, but when the companies’ pension  plans were still at risk.
Finally, in the event that the companies do not return to profitability in a  reasonable time frame, Treasury officials said that they will consider all  commercial options for disposing of Treasury’s equity, including forcing the  companies into liquidation, which would likely mean that the companies’  pension plans would be terminated and decisions would need to be made  about the allocation of remaining company assets. In such circumstances,  although there is a protective barrier preventing Treasury in its role as  shareholder from interacting with Treasury in its role overseeing the PBGC,  it may be difficult for the agency to make certain decisions without some  perceiving a tension between these two separate roles.
section_title: Concluding Observations
paragraphs: Treasury’s substantial investment and other assistance, as well as loans  from the Canadian government and concessions from nearly every  stakeholder, including the unions, have made it possible for Chrysler and  GM to stabilize and survive years of declining market share and the  deepest recession since the Great Depression. However, because of the  ongoing challenges facing the auto industry—including the still recovering  economy and weak demand for new vehicles—the ultimate impact that the  assistance will have on the companies’ profitability and long-term viability  remains uncertain. This, too, is the case for the companies’ pensions. The  companies’ ability to make the large contributions that would be required  based on current projections is mostly dependent on their profitability.  Treasury officials who oversee TARP expect both automakers to return to  profitability. Ultimately, much of the automaker recovery is not only  dependent on how well the automakers turn their companies around but  also how well the overall economy and employment levels improve.
The suppliers’ future is even more complex. GM and Chrysler are expected  to continue to reduce the number of suppliers that they use going forward.  Suppliers have diversified their client base to include many other domestic  and international automakers to minimize the impact of such cuts, but this  has caused their viability to be more dependent on a global economic  recovery, which has been slow. As a result, supplier bankruptcies and  pension plan terminations may continue for the near future.
In light of these conditions, the risks to PBGC and participants in auto sector  pension plans remain significant. PBGC estimated its exposure for unfunded  guaranteed benefits across the sector to be about $42 billion as of January 31,  2009, and the exposure for plan participants for unfunded nonguaranteed  benefits to be about $35 billion. The federal government and its institutions,  the automakers, and the unions have all made a concerted effort to ensure  that GM and Chrysler do not fail. But, should the automakers not return to  profitability, interests may no longer be aligned. Treasury officials said that  they will consider all commercial options for disposing of Treasury’s equity,  including liquidation; this would likely mean terminating the companies’  pension plans, and allocating remaining company assets. In such  circumstances, it would be difficult for Treasury to make any decisions that  would trade off the value of its investment against the expense of the pension  funds, potentially exposing the government either to loss of its TARP  investment or to significant worsening of PBGC’s financial condition. This is  not a choice the government wants to face, but this risk and its attendant  challenges remain real.
We recently recommended that Treasury should regularly communicate to  Congress about TARP activities, including the financial health of GM and  Chrysler. This would include information on the companies’ pensions as  an integral part of the companies’ financial health. Treasury already  provides some information on its investments in the automakers through  its monthly reports to Congress. In response to our previous  recommendations, Treasury said that it intended to develop an approach  for reporting on its investments in the auto industry that strikes an  appropriate balance between transparency and the need to avoid  compromising the competitive positions of the companies, and that it was  implementing a communication strategy to provide key congressional  stakeholders more current information about its TARP activities. These  reports could provide a vehicle to report publicly available information on  the financial status of the automakers’ pensions. Such disclosure could  help mitigate the potential or perceived tensions that could arise with the  federal government’s multiple roles with respect to the automakers and,  when the time comes, could shed light on how Treasury’s decision to  divest will impact the companies’ pension plans.
section_title: Agency Comments and Our Evaluation
paragraphs: We obtained written comments on a draft of this report from the  Department of the Treasury (see appendix VIII) and from PBGC (see  appendix IX). Treasury generally agreed with our findings, but reiterated  the importance of striking an appropriate balance in its public reporting  between its goal of transparency and the need to avoid compromising the  competitive positions of the companies or its ability to recover funds for  taxpayers. Treasury noted that it already provides “a wealth of  information” about AIFP on its Web site, and also provides periodic  updates to oversight bodies, including GAO. It further noted that it will  provide additional reports on its investments in Chrysler and GM as  circumstances warrant, but that it will not communicate confidential  business information due to the potential to negatively affect the value of  the investments. Treasury concluded that, given its role as a shareholder, it  would be inappropriate for it to report separately on the assets and  liabilities in the automakers’ pension plans to Congress and the public.
We understand the importance of protecting the automakers’ proprietary  interests. However, as we pointed out in our report, Treasury’s role is  multifaceted, serving not only as a shareholder and creditor for Chrysler  and GM, but also as a regulator of pensions. As a creditor of these  companies, Treasury should know and disclose the pension commitments,  which represent liabilities for these companies. These liabilities must be  taken into account when evaluating the financial status of these  companies. GM and Chrysler are already required to disclose certain  information about the status of their pensions in publicly available reports.  By including this publicly available information on the status of the  automakers’ pension plans in its reports to Congress, Treasury could  provide a more complete picture of the companies’ financial health and  help mitigate any perceived tensions between the various roles that the  Treasury currently plays as shareholder, creditor, and pension regulator  without compromising the companies’ competitive positions.
Both Treasury and PBGC provided technical comments, which are  incorporated into the report where appropriate. In addition, we received  technical comments on certain segments of the draft report from GM,  Chrysler, and Delphi, and have incorporated their comments where  appropriate, as well.
We are sending copies of this report to other interested congressional  committees and members, the Acting Director of PBGC, the Secretary of  Labor, the Secretary of the Treasury, and other interested parties. In  addition, the report is available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact Barbara Bovbjerg at (202) 512-7215 (bovbjergb@gao.gov) or A.  Nicole Clowers at (202) 512-2843 (clowersa@gao.gov). Contact points for  our offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix X.
section_title: Appendix I: The Delphi Story
paragraphs: Both as the former Delphi, prior to bankruptcy, and now as the “new  Delphi,” postbankruptcy, the Delphi Corporation has been a leading global  supplier of mobile electronics and transportation systems, including  powertrain, safety, thermal, controls and security systems,  electrical/electronic architecture, and in-car entertainment technologies.  Delphi evolved as part of General Motors (GM) until it was spun off as a  separate entity in 1999. At the time it filed for Chapter 11 bankruptcy in  2005, the company employed more than 185,000 workers in 38 countries,  making it one of the largest suppliers in the world.
The former Delphi Corporation sponsored six defined benefit plans for its  U.S.-based workers:  the Delphi Hourly-Rate Employees Pension Plan;  the Delphi Retirement Program For Salaried Employees;  the Packard-Hughes Interconnect Bargaining Retirement Plan;  the Packard-Hughes Interconnect Non-Bargaining Retirement Plan;  the ASEC Manufacturing Retirement Program; and  the Delphi Mechatronic Systems Retirement Program.
Following Delphi’s spin off from GM in 1999, GM agreed with its unions,  including the International Union, United Automobile, Aerospace and  Agricultural Implement Workers of America (UAW), to offer pension  protections for certain employees in the event that Delphi’s pension plans  would be frozen or terminated. Specifically, under the agreement, GM  agreed with three unions to provide certain former GM employees retired  from Delphi certain pension benefits that would otherwise not be paid by  Delphi or by the Pension Benefit Guaranty Corporation (PBGC) upon plan  termination. Salaried and certain other union-represented employees did  not receive similar contractual commitments from GM with respect to  their pensions or other postemployment benefits, and they are suffering  the full impact of their Delphi plans having been frozen and terminated.
In addition, GM agreed to provide transfer rights for certain Delphi hourly  UAW-represented employees in the United States. Specifically, it provided  these employees with “flowback” opportunities to transfer to GM as  appropriate job openings became available at GM. GM employees in the U.S.  had similar opportunities to transfer to Delphi. The original flowback  agreement provided that, when an employee transferred, the employee  would be eligible for pension benefits which reflected the transferring  employee’s combined years of credited service. The parties did not transfer  pension assets or liabilities in order to accomplish this. Rather, pension  responsibility between Delphi and GM was allocated on a pro-rata basis  based upon the employee’s credited service at each company.
After Delphi and its U.S. subsidiaries filed for bankruptcy in 2005, there  were extensive efforts involving negotiations between Delphi, GM, and  other stakeholders to keep the pension plans ongoing. On September 30,  2008, the company froze its salaried plan, the ASEC Manufacturing  Retirement Program, the Delphi Mechatronic Systems Retirement Program  and the Packard Hughes Interconnect Non-Bargaining Retirement Plan.  The company also reached agreement with its labor unions allowing it to  freeze the accrual of traditional benefits under its hourly plan, effective as  of November 30, 2008.
Delphi received the consent of its labor unions and approval from the  court to transfer certain assets and liabilities of Delphi’s hourly plan to  GM’s hourly plan. The first transfer involved liabilities of approximately  $2.6 billion and assets of approximately $486 million (about 90 percent of  the estimated $540 million of assets initially scheduled to be transferred).  It was anticipated that the remaining assets would be transferred by March  29, 2009, upon finalizing the related valuations. In exchange for the first  transfer, Delphi’s reorganization plan released GM from all claims that  could be brought by its creditors with respect to, among other things, the  spin off of Delphi, any collective bargaining agreements to which the  former Delphi was a party, and any obligations to former Delphi  employees.
Although the first transfer had the effect that no contributions were due  under the hourly plan for the plan year ended September 30, 2008, Delphi  still had a funding deficiency of $56 million for the salaried plan and an  approximate $13 million funding deficiency for its other pension plans for  the plan year ending September 30, 2008. Delphi applied to the Internal  Revenue Service (IRS) for a waiver of the obligation to make the minimum  funding contribution to the salaried plan by June 15, 2009, and requested  permission, instead, to pay the amount due in installments over the  following 5 years. However, Delphi abandoned the waiver request when it  became clear that it could not afford to maintain the salaried plan and that  GM was not going to assume it. “ . . . due to the impact of the global economic recession, including reduced global  automotive production, capital markets volatility that has adversely affected our  pension asset return expectations, a declining interest rate environment, or other  reasons, our funding requirements have substantially increased since September 30,  2008. Should we be unable to obtain funding from some other source to resolve these  pension funding obligations, either Delphi or the Pension Benefit Guaranty  Corporation (the “PBGC”) may initiate plan terminations.”
Delphi’s financial difficulties continued, and when the second transfer of  pension assets and liabilities to GM was not implemented on July 31, 2009,  PBGC terminated all six of Delphi’s U.S. qualified defined benefit plans.  PBGC assumed responsibility for the plans on August 10, 2009. According  to PBGC, this step was necessary because Delphi had stated that it could  not afford to maintain its pension plans and GM, which itself had  reorganized in bankruptcy earlier in the year, had stated that it was unable  to afford the additional financial burden of the Delphi pensions. PBGC  stated that the Delphi pension plans were $7 billion underfunded when  they terminated the plans. PBGC estimates that it will make up about $6  billion of that shortfall using PBGC funds. Following PBGC’s takeover of  the plans, on October 6, 2009, in accordance with Delphi’s plan of  reorganization, the former company sold its U.S. and foreign operations to  a new entity, Delphi Automotive LLP, with the exception of four UAW  sites in the United States and its steering business, which were sold to GM.
PBGC has acknowledged that the calculation of benefits for former Delphi  plan participants will be a difficult, lengthy process due to the plans’  complex benefit structures and the availability of documentation for all  the mergers and acquisitions that have taken place throughout the life of  the plans. On its Web site, PBGC stated that it could take 6 to 9 months  from Delphi’s date of trusteeship before it adjusted benefits to estimated  PBGC benefit amounts. Moreover, PBGC noted that it could take several  years to fully review the plan and finally determine all benefit amounts.
section_title: Appendix II: Legal Limits on PBGC Guaranteed Benefits
paragraphs: To help protect the retirement income of U.S. workers with private sector  defined benefit plans, PBGC guarantees participant benefits up to certain  limits specified under the Employee Retirement Income Security Act of  1974 (ERISA) and related regulations. These limits include the phase-in  limit, the accrued-at-normal limit, and the maximum limit, as illustrated  below in figure 8.
section_title: Appendix III: Recent Attrition Programs at GM and Chrysler
paragraphs: Appendix III: Recent Attrition Programs at  GM and Chrysler   are based on actual numbers; data for 2009 are based on projected numbers, across all ten U.S.  ualified defined benefit plans, as appropriate.
Lump sum payments during 200 paid with pension plan assets; payments before 200 and after  200 paid with company assets.  , the retirement age was 5 instead of 55 for certain salaried nonunion employees.
section_title: Appendix IV: Product Lines and Facilities Being Eliminated
paragraphs: Production ceased at the  end of August 2009.
The New United Motor Manufacturing  Incorporated facility (known as “Nummi”)  jointly operated by GM and Toyota in  Fremont, CA, to close.
Production of the last  Pontiac model will cease  by the end of December  2010.
None identified to date.
In February 2010, GM  announced that the sale  of Hummer to Sichuan  Tengzhong Heavy  Industrial Machinery Co.,  Ltd. could not be  completed and there  would be an orderly wind- down of Hummer  operations. Currently  approximately 850 units  of the H3 model are  being produced for a fleet  customer. H3 production  will cease at the end of  June 2010. All other  Hummer production  ceased at the end of  September 2009.
None identified to date.
Production ceased at the  end of July 2009.
None identified to date.
Following Penske  Automotive Group’s  decision to terminate  discussions to acquire  Saturn in September  2009, GM announced  that it would be winding  down the Saturn brand  and dealership network.  Production ceased at the  end of December 2009.
None identified to date.
Purchased by Spyker  Cars, NV, on February  23, 2010.
The previously announced wind down of  Saab operations has ended. Saab and  Spyker will operate under the Spyker  (AMS:SPYKR) umbrella, and Spyker will  assume responsibility for Saab  operations.
Total number of  assembly, powertrain,  and stamping facilities in  the United States to be  reduced from 47 in 2008  to 34 by the end of 2010  and 33 by 2012.
Powertrain castings plant in  Massena, NY, closed in May 2009.
Stamping plant in Grand Rapids, MI,  closed in May 2009.
Assembly plant in Wilmington, DE,  closed in July 2009.
Assembly plant in Pontiac, MI,  closed in September 2009.
Stamping plant in Mansfield, OH,  closed in January 2010.
Powertrain engine plant in Livonia,  MI, to close by July 2010.
Powertrain components plant in  Fredericksburg, VA, to close by  August 2010.
Powertrain plants: Flint North  components plant and Willow Run  Site, MI; and Parma, OH,  components plant to close by  August 2010.
Stamping plant in Indianapolis, IN,  to close by December 2011.
Stamping plant and assembly plant  in Shreveport, LA, to close by June  2012.
Three parts distribution  centers closed.
Parts distribution centers in Boston,  MA; Columbus, OH; and  Jacksonville, FL, closed on  December 31, 2009.
Dodge Magnum  and the Chrysler  Pacifica,  Crossfire, and PT  Cruiser  convertible.
Announced in November  2007 that these four  models were to be  eliminated from the  product portfolio through  2008. Subsequently  announced that the PT  Cruiser would remain in  production.
Production at several North American  assembly and powertrain plants to be  cut, which combined with other actions,  was expected to reduce the number of  hourly jobs by 8,500 to 10,000 people  through 2008. See May 2009 updated  list of plant closings provided below in  last row of this table.
Announced in June 2009  that production would end  effective July 10, 2009.
St. Louis Assembly Plant North in  Fenton, MO. See also below.
List of plants scheduled for  closing, as of May 2009.
St. Louis Assembly Plant South in  Fenton, MO, closed October 2008.
Assembly plant in Newark, DE,  closed in December 2008.
St. Louis Assembly Plant North in  Fenton, MO, was to close by the  end of September 2009. Production  to be moved to Warren Truck  Assembly plant.
Conner Avenue Assembly Plant in  Detroit, MI, was to close in  December 2009.
Stamping plant in Twinsburg, OH,  was to close in March 2010. Existing  volume to be transferred to Warren  Stamping and Sterling Stamping  plants.
Assembly plant in Sterling Heights,  MI; engine plant in Kenosha, WI;  and axle plant in Detroit, MI, to close  at the end of December 2010.
section_title: Appendix V: History of Major Acquisitions and Divestitures
subsections: section_title: Founded September 16, 1908.
paragraphs: 1908: Acquired Oldsmobile and Reliance Motor Truck  Company.  1909: Acquired Cadillac; Oakland Motor Car Company;  Rapid Motor Vehicle Company (later renamed GMC  Truck); and Champion (later renamed AC Spark Plug  Company).  1918: Acquired McLaughlin Motor Company (later  renamed General Motors of Canada) and United Motor  Corporation.  1919: Acquired Fisher Body; Dayton Wright Company;  Guardian Frigerator (later renamed Frigidaire); and  Saginaw Malleable Iron Company (renamed Saginaw  Products Company).  1925: Acquired Vauxhall Motors, Ltd., based in Luton,  England.
Founded June 6, 1925.  1928: Acquired Dodge.
1929: Acquired Adam Opel Corporation, located in  Rüsselsheim, Germany; and Allison Engineering  Company.  1930: Acquired Electro-Motive Engineering Corporation.  1931: Acquired Holden’s Motor Body Builders Limited;  merged with GM’s Australia Proprietary, Limited, to form  Holden’s Limited, located in Melbourne, Australia.  1933: Acquired a controlling interest in North American  Aviation; merged with GM’s General Aviation division.  1953: Acquired Euclid, Inc.
1957: Acquired Ensamblaje Venezolana, soon renamed  Chrysler de Venezuela S. A.  1959: Acquired Chrysler South Africa Ltd.
1968: Sold most of Euclid; renamed remaining facilities the  Terex Division.
1963: Acquired Chrysler Hellas S. A., Greece.  1965: Acquired the outboard engine business of West  Bend Company of Hartford, Wisconsin and the Lone Star  Boat Company of Plano, Texas, forming the Chrysler Boat  Corporation.  1967: Acquired Redisco, Inc., from American Motors  Corporation and integrated it with Chrysler Credit to form  Chrysler Financial Corporation. Also acquired 77 percent  of Barreiros Diesel S. A. (Spain), and increased interest in  Chrysler do Brasil (Brazil) to 92 percent.
1973: Merged Allison Engineering with Detroit Diesel.
1970: Control of Rootes Group equity reached 73 percent;  the company renamed Chrysler United Kingdom Ltd.  1976: Sold the Airtemp Division to Fedders Corporation.  1978: Sold the Chrysler Europe Division.
1981: Sold Terex Division.
1980: Sold the Marine Division.
1984: Acquired Electronic Data Systems Corporation.
1981: Sold the Defense Division to General Dynamics.
1985: Acquired Hughes Aircraft Company; merged with  Delco Electronics to form a new subsidiary called Hughes  Electronics.
1984: Reorganized into a holding company that included  Chrysler Motors, Chrysler Financial, Gulfstream  Aerospace and Chrysler Technologies.
1988: Spin off of Detroit Diesel.
1987: Acquired American Motors Corporation (and Jeep)  for $800 million.
1989: Purchased 50 percent equity in Saab Automobile  AB of Sweden; later purchased the remaining 50 percent  to become sole owner in 2000.  1993: Sold Allison Gas Turbine.  1996: Sold Electronic Data Systems Corporation.
1998: Merged with Daimler-Benz AG; operated as  “Chrysler Group,” a business unit of DaimlerChrysler AG.
1997: Sold Hughes Aircraft to Raytheon.  1999: Spin off of Delphi; acquired exclusive rights to the  Hummer brand name from AM General Corporation.   2002: Acquired the bulk of Korean automaker Daewoo  Motor’s automotive assets and created a new company  called GM Daewoo Auto & Technology.
2007: Just over 80 percent of Chrysler and its related  financial services business sold to Cerberus Capital  Management for $7.4 billion.
2003: Sold Hughes Electronics.
2008: Spin off of Chrysler Financial Corporation.
2005: Sold Electro-Motive Diesel.  2006: Divested majority ownership in its financing unit,  General Motors Acceptance Corporation (now known as  GMAC).  2007: Sold Allison Transmission.  2009: Acquired five U.S.-based components plants from  Delphi.
section_title: Appendix VI: Allocation of Assets to Participant Benefits
paragraphs: When a pension plan is terminated and trusteed by PBGC, ERISA specifies  that the remaining assets of the plan and any funds recovered for the plan  during the bankruptcy proceedings be allocated to participant benefits  according to six priority categories (see table 10).
Funds recovered from bankruptcy proceedings are also allocated using  these priority categories, but unlike plan assets, recoveries are required to  be shared between participants’ unfunded nonguaranteed benefits and  PBGC’s costs for unfunded guaranteed benefits. As a result, recoveries  are often more advantageous for participants than residual plan assets.  PBGC allocates the participants’ portion of the recoveries beginning with  the highest priority category in which there are unfunded nonguaranteed  benefits, and then to each lower priority category, in succession.
section_title: Appendix VII: PBGC Example Benefit Calculations
paragraphs: PBGC prepared example benefit calculations to illustrate how termination  of the automaker pension plans might impact participant benefits,  depending on the participant’s situation (see table 11). The calculations  assume that plan assets and recoveries are not sufficient to fund  nonguaranteed benefits beyond a portion of those benefits in priority  category 3 (that is, of those retired or eligible to retire for at least 3 years),  and they focus on those who would lose the most under such situations.  Although an early retiree eligible for priority 3 status would lose the least,  all early retirees under age 62 as of the date of plan termination would lose  a sizeable portion of their benefits until age 62 because their supplements  are not guaranteed. The person who retired early under a special attrition  program or plant shutdown benefit would lose even more, as the enhanced  benefits under the special program would also not be guaranteed, reducing  the person’s lifetime benefit by more than half. Finally, the person not yet  eligible to retire would lose the most. Compared to the benefits promised  under the plan, he would not be able to retire for 5 more years and his  payment would be less than a quarter of the amount promised. Over time,  in general, more employees will be eligible to retire and qualify for priority  3 status, and the amount of retirees’ monthly guaranteed benefits will  increase.
section_title: Appendix VIII: Comments from the Department of the Treasury
section_title: Appendix IX: Comments from PBGC
section_title: Appendix X: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Kimberley M. Granger and  Raymond Sendejas, Assistant Directors; Charles J. Ford, Jonathan  McMurray, Margie K. Shields, Sarah A. Farkas, Heather Halliwell, and  Joseph A. Applebaum made significant contributions to this report. James  Bennett, Jessica A. Botsford, Orice Williams Brown, Susannah L.  Compton, Shannon K. Groff, Cheryl M. Harris, Susan J. Irving, Charles A.  Jeszeck, Gene G. Kuehneman, Christopher D. Morehouse, Michael P.  Morris, Robert Owens, Roger J. Thomas, and Craig H. Winslow also made  important contributions.
section_title: Related GAO Products
paragraphs: Troubled Asset Relief Program: The U.S. Government Role as Shareholder  in AIG, Citigroup, Chrysler, and General Motors and Preliminary Views  on its Investment Management Activities. GAO-10-325T. Washington,  D.C.: December 16, 2009.
Troubled Asset Relief Program: Continued Stewardship Needed as  Treasury Develops Strategies for Monitoring and Divesting Financial  Interests in Chrysler and GM. GAO-10-151. Washington, D.C.: November  2, 2009.
Pension Benefit Guaranty Corporation: Workers and Retirees  Experience Delays and Uncertainty when Underfunded Plans Are  Terminated. GAO-10-181T. Washington, D.C.: October 29, 2009.
Troubled Asset Relief Program: Status of Efforts to Address  Transparency and Accountability Issues. GAO-09-1048T. Washington,  D.C.: September 24, 2009.
Pension Benefit Guaranty Corporation: More Strategic Approach Needed  for Processing Complex Plans Prone to Delays and Overpayments.  GAO-09-716. Washington, D.C.: August 17, 2009.
Troubled Asset Relief Program: June 2009 Status of Efforts to Address  Transparency and Accountability Issues. GAO-08-658. Washington, D.C.:  June 17, 2009.
Pension Benefit Guaranty Corporation: Financial Challenges Highlight  Need for Improved Governance and Management. GAO-09-702T.  Washington, D.C.: May 20, 2009.
Auto Industry: Summary of Government Efforts and Automakers’  Restructuring to Date. GAO-09-553. Washington, D.C.: April 23, 2009.
Troubled Asset Relief Program: March 2009 Status of Efforts to Address  Transparency and Accountability Issues. GAO-09-504. Washington, D.C.:  March 31, 2009.
Troubled Asset Relief Program: Status of Efforts to Address  Transparency and Accountability Issues. GAO-09-296. Washington, D.C.:  January 30, 2009.
Auto Industry: A Framework for Considering Federal Financial  Assistance. GAO-09-242T. Washington, D.C.: December 4, 2008.
Troubled Asset Relief Program: Additional Actions Needed to Better  Ensure Integrity, Accountability, and Transparency. GAO-09-161.  Washington, D.C.: December 2, 2008.
Pension Benefit Guaranty Corporation: Improvements Needed to  Address Financial and Management Challenges. GAO-08-1162T.  Washington, D.C.: September 24, 2008.
Defined Benefit Pensions: Plan Freezes Affect Millions of Participants  and May Pose Retirement Income Challenges. GAO-08-817. Washington,  D.C.: July 21, 2008.
PBGC Assets: Implementation of New Investment Policy Will Need  Stronger Board Oversight. GAO-08-667. Washington, D.C.: July 17, 2008.
Pension Benefit Guaranty Corporation Single-Employer Insurance  Program: Long-Term Vulnerabilities Warrant “High Risk” Designation.  GAO-03-1050SP. Washington, D.C.: July 23, 2003.