\"General Motors\" Please respond to the following: From the case study, assess
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Question
"General Motors" Please respond to the following:
From the case study, assess the benefits and detriments of the U.S. Government-proposed bankruptcy plan that conserved General Motors’ liability to the United Auto Workers (UAW) pension and retiree health care fund. Indicate your agreement or disagreement with this approach. Provide support for your rationale.
Examine the major advantages of transferring the post-retirement benefits to the UAW by General Motors. Indicate the likely impact to the company and its employees.
Explanation / Answer
The plan that the government proposed for the GM liability includes the clause that the bondholders will exchange the two third of their debt for the common stock of the company. But since the company is nearing the bankruptcy, the worth of the stock is nearly negligible. This means there is no point for the bond holders to exchange with the common stock. There are two detriments for them:
There are some benefits too. First of all, there is now a possibility that the bond holders will get some money which in other case might not be true. There is a possibility that the money do not reach the bondholders in the normal scenario.
Also with the government proposed pension plans and health care plans, most of the employees will get the benefit. The employees are benefitted from the minimum pension and hence even if the liabilities are much higher than the assets the minimum pension as per the standards is fixed.
This also means the company can work independently and freely. Also there is a tax benefit for the company when they invest in such plans. Hence this plan is a win win game both for the employees and for the company.
In other case, when there is sufficient amount of assets, the employees know that the government will pay more than the minimum amount and hence there is a upside possibility for the pension amount that they will get.
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