As interest rates rise and cash injection, Ford Motor (FN) has been in a position unthinkable just a few years ago - is fully funded by U.S. pension funds.
Of the month, Ford, burning through a restructuring in 2006, but its rival General Motors (GM.N: Quote) and Chrysler (FIA.MI: Quote), to avoid the bankruptcy route, can be reduced by half or even more, its pension gap in the United States from $ $ 970 million in late 2012, according to securities analysts and Reuters calculations.
Can eliminate the gap provided by the 2014 economists expect rising interest rates, the stock market remains strong. Analysts said that this might give Ford supplementary resources to repay debt, investment business, or increase the dividend payment.
"This is a real obligation of the company, now that it is quite a bit of capital, Ford Chief Financial Officer Bob Shanks said:" In an interview with reporters carmaker's pension gap.
"Once we get it fully funded, risk and sorting, put it in a box, it gives us the ability to not worry so much, future cash flows, and put it where we want," he said.
If Ford fully fund its U.S. pension plan next year, more than many analysts had expected would be quicker. General Motors may close its U.S. pension gap, about one to two years behind Ford said Guggenheim Securities analyst Matt Christopher.
But the key to this program is used to calculate pension obligations for retirees interest rates continue to rise. Analysts said Ford is also willing to pay at least $ 10 billion, in 2014 closed its U.S. pension gap.
Eliminate the shortage is "probably by the end of 2014, and said:" This is because interest rates climb, stalk, is expected by the end of 2013 of approximately $ 400 million, Ford in the U.S. pension plan underfunding.
Ford's pension obligations in the United States late last year to $ 520 billion, while GM's approximately $ 8.2 billion.
General Motors Corporation is an American car as a "Treaty of Detroit," "Legend of the United Auto Workers union leader Walter Reuther part of the contract negotiations, in 1950 the establishment of a pension plan. Ford and Chrysler followed suit.
But the mid-2000s, pension and other retirement benefits become an officer of the increasing responsibilities carmaker said, adding the cost of the vehicle is $ 2,000, and put them on the foreign competitors at a disadvantage.
Since then, GM and Ford have taken measures to shut down their plans, new participants, providing a one-time buyout and move to a more conservative investment, "de-risking" their pension plans.
Last year, General Motors Corp. cut 29 billion, or a fifth of its global pension liabilities transferred management of white-collar salaried 118,000 Prudential Financial Corporation (PRU.N), the unit retiree pension scheme.
However, lack of funds is still a problem, partly because the gap is considered by credit rating agencies as debt.
Ford plans to inject into its global pension plans $ 500 million in cash this year to help reduce the shortage of funds - although some will go pension schemes elsewhere in the world.
In order to inadequate funding and Ford's cash injection, in context, car manufacturers spent $ 5.5 billion in 2012 in product development, plant construction and other capital expenditures.
$ 4,000,000,000 blessing
Companies calculate their future pension liabilities, using the so-called discount rate, which is based on the present value of corporate bond rates. The higher the rate, mean lower debt, which means that the company does not set aside as much cash to pay retirees in the future.
Based on the most optimistic scenario laid the actuarial firm Milliman, higher interest rates may be reduced by the end of 2014 Ford alone approximately $ 400 million of the pension gap. Christopher said that higher interest rates may be close to Ford's U.S. pension gap by about half.
"Automotive companies have been working with these large pension liabilities," Citigroup analyst Itay Michael Ellis said. "It becomes a kind of helpless investors in response to greater volatility at the top of an already unstable industry dynamics."
The end of the U.S. pension gap "take an element that can be said to suppress the investor sentiment, but the need for this issue," added Michael Ellis.
, Which is based on corporate bond yields, is used to pay for their entire life cycle, their plans to determine the present value of the discount rate, in June this year has risen to 4.74% in December to 3.96%, According to Matilda.
The end of 2013, the discount rate may be as high as 5.04%, while the end of 2014, it may be as high as 5.64%, Matilda estimates.
A smaller pension gap may pave the way for Ford's S & P credit rating upgrade upgrade to investment grade, Michael Ellis said. This will allow the car manufacturers unsecured debt capital remaining U.S. pension gap.
"By issuing bonds, the release of free cash flow what you're doing," he said, adding that can be used to increase dividends, the development of new vehicle or pay off debts.
For Ford, one percentage point increase in the discount rate alone may reduce its pension obligations in the United States from $ 23 billion U.S. dollars, Shanks said second-quarter earnings call at Ford.
 



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