April 26, 2009 / 8:56 PM / 10 years ago

GM retirees watch, worry as day of reckoning nears

DETROIT (Reuters) - John Martinez, a former autoworker, feels as though he is watching his future sink as General Motors Corp slips closer to failure.

GMC cars are displayed at the Peoria Pontiac GMC car dealership in Peoria, Arizona April, 25 2009.REUTERS/Joshua Lott

Pressured to take an early retirement in April, Martinez had been pinning his hopes on GM’s once-generous pensions and health-care benefits to help look after his four children and his disabled father, also a GM hourly retiree.

But with the 100-year-old industrial icon teetering on the brink of bankruptcy, Martinez and the nearly 1 million other Americans who rely on the automaker for healthcare and pensions face new risks and heightened uncertainty.

“It’s scary. It’s like I don’t know my future,” Martinez, 51, said at his house in Lincoln Park, a working class suburb of Detroit. “If they go bankrupt, I’m at their mercy.”

Martinez is looking for a new job but remains cautious about his prospects of finding something quickly in Michigan where the jobless rate led the nation at 12.6 percent in March.

“I never wanted to leave GM. I am still too young,” Martinez said. “If I lose any more, I don’t know if I can sustain mortgages and bills.”

GM has until the end of May to win deep concessions from bondholders and the United Auto Workers union. The Obama administration has said bankruptcy is an option.

At stake is the future of some $20 billion in debt GM owes into a retiree health-care trust that the automaker and the UAW agreed to create as part of a cost-saving contract in 2007.

The trust, which UAW President Ron Gettelfinger had said would safeguard retiree healthcare for 80 years, is now unraveling before it even begins its first year.

GM has pledged to pay $7.6 billion to the trust fund by next year, but that is cash it does not have and cannot afford to pay. As a result, negotiations are under way with the UAW that would give the union GM stock instead of cash.

For GM, which has taken $15.4 billion in U.S. government loans since the start of the year, such a deal is seen as crucial to its emerging from a restructuring — and potentially bankruptcy — as leaner and profitable.

Among other problems, GM has been burdened by the legacy of costly benefits. As of last year, the top U.S. automaker had been paying health-care costs for almost 10 beneficiaries for every one of the roughly 140,000 workers on its payroll.

But for GM retirees, the result of taking a riskier asset in GM stock instead of cash to offset future health-care costs is certain to be higher out-of-pocket expenses, analysts say.

“The plan was underfunded to begin with,” said Lance Wallach, a financial consultant who specializes in such health-care trusts. “Now, it’s a joke.”


Smoking outside a GM union hall in Warren, another working- class suburb north of Detroit, Wayne Pierce said he never thought he would see GM toppling like this.

Pierce, 62, retired in July after 25 years as a mechanic at GM’s technical center. He had worked 42 years in UAW jobs, including his earlier days with Chrysler.

“If they take out my pensions and healthcare, I have to go back to work just to survive,” Pierce said. His big concern, he said, would be losing health insurance benefits, since his wife, Peggy, suffers from arthritis and diabetes.

“I don’t know how GM has got to this point,” he said. “I never imagined my life would wind up like this. This was not my game plan.”

As GM’s talks with the UAW play out, the automaker is also seeking a deal with bondholders to reduce some $28 billion they are owed. Like the UAW, bondholders face pressure to convert GM’s debt to them into equity. Those talks have stalled after U.S. officials rejected a request from bondholders that the government guarantee a portion of their debt.

“What if they just collapse and the stock becomes worthless? It’s scary. That’s why bondholders don’t want to do it,” said Tom Puwal, a 77-year-old GM retiree.

GM shares, which ended 2007 at nearly $25, now stand at less than $2. Analysts see little chance of any recovery for current shareholders in a bankruptcy.

For John Martinez and his wife, Elizabeth, hedging against GM’s failure means cutting back at the grocery store and dropping the small extravagances for their three school-aged children.

Their youngest daughter, 11-year-old Elisa, has a bedroom covered with half a dozen posters of Hollywood teen heartthrob Zac Efron. But the family can’t afford those kinds of collectibles now, Elizabeth said.

“Being a child, she understands the situation, which I’m grateful for,” Elizabeth said. “Right now, our biggest priority is to keep this home.”

Reporting by Soyoung Kim, editing by Maureen Bavdek

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