Making Money Cash

As
General Motors has shrunk, its pool of U.S. retirees has swelled.
Today there are almost 700,000 GM retirees and just 70,000 active
workers, a 10-1 ratio. The company’s $100 billion pension fund is twice
the market capitalization of the automaker itself, and keeping up with
funding obligations acts like a ball and chain on GM’s core car-making
business. Small swings in the value of the pension plan can have
massive effects on the value of the company. “That’s no way to run a
company,” said GM’s chief financial officer Christopher Liddell.

 

I
met with Liddell during the Detroit auto show this week, and he talked
extensively about GM’s more conservative financial philosophy since
emerging from bankruptcy in July 2009. GM’s objective is to carry no
debt, fully fund its pension plan, and pay for its day-to-day
operations using cash generated from the sale of cars and trucks. It
sounds so simple, but that’s not the way GM has been run in many years.

 

GM
took a big step in that direction Friday, announcing it had
contributed $2 billion in newly minted GM stock to its U.S. pension
plan, on top of $4 billion in cash it had contributed a couple of months
back to try to bring that pension fund closer to fully funded status.
As of the end of 2009, the portfolio was $17.1 billion short of what it
should have, under government rules, to cover its current and future
pension obligations.

 

The gap likely
closed some in 2010, thanks to strong market returns, but the gains
could be offset by further swelling in the retiree ranks. GM plans to
give an annual update on the health of its pension plan next month when
it announces its fourth-quarter financial results.

 

Three
factors determine the health of any pension fund: asset returns,
company contributions and the discount rate, which is used to calculate
the present value of pension liabilities and is tied to interest
rates. In the past, market swings and interest rates would cause GM’s
pension fund to fluctuate wildly between being overfunded and
underfunded. In the 1990s, GM borrowed heavily to pay off its pension
plan, saddling itself with hefty interest payments. As long as the stock
market remained high, the value of the assets in GM’s portfolio
exceeded its liabilities. But even a change in the discount rate could
cause big swings in the plan’s funding status.

 

Between 2005 and
2007, GM’s pension plan was in great shape, and the company didn’t need
to make any contributions. But then the equity and credit markets
collapsed, coupled with declines in the discount rate (which made the
present value of GM’s pension liabilities rise significantly) and more
early retirements at GM, increasing the number of beneficiaries.
Suddenly, the pension plan was $17.1 billion in the hole.

 

“We’ve
got to get this company to where the economics, everything, is driven
around designing, selling and producing cars,” Liddell said. “Things
like the pension plan don’t enter into the equation.”

 

Liddell
said he believes GM can fully fund the pension plan within three years
at which point, he plans to “de-risk” the portfolio by investing less
in equities and real estate, and more in fixed income assets, which
generally provide a lower rate of return. “Perfection to me would be
where the assets exactly equal the liabilities in both their maturity
and their risk profile,” he said.

 

He’s not expecting perfection,
but he is expecting GM to operate debt-free in the future. It seems
like forever that GM has been up to its neck in debt, including its
pension and health care obligations to retirees. But it’s only in the
past 15 years or so that GM has been highly leveraged. Before that, it
was a AAA-rated company.

 

Now it’s working to get back there. It
off-loaded retiree health care to a union trust fund in 2009, is
working on the pension problem, and restructured the rest of its debt
during its government-controlled bankruptcy. In 2010, GM lowered its
debt from $14.2 billion to $5 billion, and reduced its $9 billion
preferred share obligation to $7 billion. It obtained a $5 billion
revolving credit loan, but Liddell said he doesn’t think GM will have
to tap into it.

 

Perfection? No. But progress, yes.

I
agree, it's not perfect but it's progress. GM is doing the right thing
by topping up its pension plan now that times are good. If they can
reach fully funded status in three years, so much the better. Of course
that entirely depends on where markets are heading. In the
meantime, GM can focus on its core business and hope that car sales pick
up steadily in the next few years.

Another Facebook change, another privacy uproar. Read the headlines and you might have thought the social network was planning to open the books on private cellphone numbers and home addresses to any advertiser willing to slip them some cash, rather than adding some more sharing options along with the usual granular control over who gets to see what of your digital details. Unsurprisingly Facebook froze its plans pending a reassessment of its privacy controls; unfortunately, nobody is taking Facebook users – and the online community in general – to task over taking some responsibility for what they share.

If you haven’t been following the story, here’s the situation in a nutshell. Facebook announced on Friday that it was planning to add address and mobile number to the personal information that could be shared with applications, websites and advertisers. As with other personal details, the degree to which that data was accessible would be managed under each user’s permissions settings: everything from a come-and-get-me open pipe to a complete block on anything being revealed. Facebook billed it as a way to “easily share your address and mobile phone with a shopping site to streamline the checkout process, or sign up for up-to-the-minute alerts on special deals directly to your mobile phone.”

Don’t get me wrong; I’m under no illusion that Facebook is doing this for altruistic reasons. Making online purchases quicker is undoubtedly handy to those who actually click through Facebook adverts, but for the social network itself it’s all about making money from its most valuable asset: its millions of registered users. Just like with a free newspaper, Facebook makes its money by showing you adverts, and it can use your personal information to tailor those ads more appropriately. Access to personal contact details, meanwhile, is even more valuable.

However, just because there’s profit to be made for Facebook, it doesn’t mean this is either bad for the user or a sign of Evil Big Business taking advantage of the general public. We manage the degrees to which we disclose personal information all the time, long before Facebook arrived and gave us a simple privacy settings page to work with. Every time you avoid giving your phone number to a door-to-door charity worker, tick the no-junk-mail box on a bank form or refuse to give your address to someone you just met at a bar, you’re exercising your own, personal privacy filter.

Perhaps I’m being unfair. After all, it only takes a quick glance at sites like Lamebook (often NSFW) to see that many Facebook users have problems with over-sharing, accidentally making public posts out of what were meant to be private messages, and generally forgetting who out of their friends and family can read what they’re saying. Maybe Facebook does have some intrinsic responsibility to shepherd its members through the difficult journey that is online life; perhaps the privacy pages really won’t be complete until there’s color coding, pop-up warnings and a virtual cash register showing just how much you’ve lined Mark Zuckerberg’s pocket.

This constant push-me-pull-me with Facebook does users no favours. Every time the privacy patrol scream, and Facebook backtracks, it reinforces the idea that the site itself is solely responsible – should be responsible – for making safe use of the information we share online. Don’t get me wrong, if Facebook was looking to sneak in a “we can sell your identify” clause into the T&Cs, that’s something worth shouting about. When, though, we muster the same amount of vitriol for sharing options that already have safeguards – safeguards that satisfactorily protect our email address and other details – it looks more like abdication of responsibility. We want to trust Facebook do “do the right thing” – based on our own interpretation of what “the right thing” is, exactly – so that we won’t have to. We can spend our time looking up old crushes, posting photos of ourselves looking fierce in clubs, and commenting on videos of cats.

Privacy is important, but the responsibility begins at the individual level. Just as you don’t hand out your address to strangers in the street, maybe giving it to every website that asks isn’t all that sensible either. Relying on other people, or companies, to protect us universally is a naivety we abandon before adulthood in the real world, yet something many seem determined to cling to online. That’s before you get to the thorny issue of lost or stolen data. In the end, it’s your life, your number, your face: it’s up to you whether it’s an open book.

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