Stalled GM needs a restart

www.breakingviews.com

As General Motors boss Rick Waggoner takes charge of the company's US factories, he should ask himself a basic question: Why bother? There's no doubt that GM needs a tune-up. And Waggoner might be the mechanic for the job. But GM faces a bigger problem, one that tinkering with the engine is unlikely to fix – long-term solvency.

The threat to solvency comes from the company's huge liabilities for pensions and healthcare. The big number is the

$61 billion of unfunded healthcare liabilities, of which $28 billion are on the balance sheet. These are likely to get much bigger as the ratio of retired to active workers – already an astonishing 2.4 to 1 – increases. As for pensions, the company reports a mere $8 billion underfunding for the end of 2004, but more realistic return assumptions would bring the total up.

Those off-balance-sheet liabilities are not exactly debt;...