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Going Long On The Play

It wasn't a Hail Mary pass. But facing $19 billion in underfunding, GM's treasury knew it needed to take calculated risks to get the pension issue off the table

By Staff Writer | Updated on September 01, 2003

As treasurer of General Motors Corp., Walter Borst thinks his most important job is to keep his company flexible, able to negotiate through the economy’s ebbs and flows, able to grow when the opportunity can be seized. But despite GM’s successes in recent years in improving the company’s cash flow and upgrading its product line, the auto giant has a big problem. Thanks to the stock market’s sell-off and the 45-year low in interest rates, the second biggest company in the United States in terms of revenue is facing one of the nation’s biggest pension liabilities.

GM is hardly alone shouldering such a burden: Standard & Poor’s Corp. estimates that the total pension underfunding of S&P 500 companies stood at $226 billion in mid June. Still, GM’s liability was $19.3 billion at the end of 2002 and growing so big that it seemed to overshadow everything else the company was achieving. In October 2002, S&P had cut GM’s credit rating because of the pension shortfall, and investors seemed to focus on nothing else. “We felt that GM was becoming a little bit of a poster child for this issue,” Borst observes. “There was a significant overhang for the company,”

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