The new Bankruptcy Economy
 

from G. North's Daily Reckoning:

And all over the country, people are having trouble keeping
up with their obligations.

The city of San Diego has $1.2 billion in pension benefits
it can't seem to cover.

General Motors has a glut of unsold 2004 models - so many
it is offering 0% financing for six years to get rid of
them. But it also owes so much in pension and health care
costs for its employees it is almost impossible for the
company to ever make any money.

Over at Honda, each car costs the company $107 in
pension and health care costs. But at GM, the cost is
$1,360. You can imagine what the cost is for Chinese
manufacturers. How can GM compete? How can it stay
in business?

What do you do when you get in this situation?

"Welcome to the bankruptcy economy," says Jim Jubak over at
TheStreet.com. You cut prices... forced by competition, of
course... but you can't cut your costs - especially the
promises you've made to employees. Then, you declare
bankruptcy. What else can you do?

Delta and US Airways, for example, were greased up by the
bankruptcy courts and are now wiggling out of their
obligations to pilots.

The steel industry, says Jubak, showed the way. Nucor, for
example, "employs far fewer steelworkers at far lower total
wage and benefit costs than it did in 1975."

Go bankrupt. Cut costs. Cut payrolls. Cut spending.

Not something to look forward to. But something to expect.

Fear China :glugglug

bankruptcy has been a viable exit strategy for companies for decades and decades

and airlines ALWAYS go bankrupt

but i'm not sure when gm stopped being profitable??

they realized $3+bil in profits on 300+ billion in sales last year and are only ~2% off that number for 2004.
yes, there's a glut of pri8marly SUVs for sept but that is mainly due to market shifting from that style of vehicle

gm is also ranked as one of the best corporations to work for, according to forbes so they must think their pension coifers are safe



re: san diego

The deficit is due to a mix of factors, including underfunding by the city dating to 1996, benefits granted but not funded, and HUGE investment losses in 2000-02.

For now, the city has still strong ratings from Fitch and Moody's Investors Services.
some analysts feel that Standard & Poor's action "is analytically defensible" but "exaggerates the impact of the current situation."