The Oracle of Delphi: GM's Pension Disaster And What It Means for Social Security

Defined benefit pensions are a ticking time bomb.

by Rod D. Martin
October 24, 2005

Delphi's bankruptcy filing -- a result of mounting, unsustainable pension costs incurred decades ago -- was grim news for its creditors, its stockholders, and its tens of thousands of workers. But it was also a warning of things to come: for the entire American auto industry, and for Social Security as well.

Delphi was a GM division until its spinoff in 1999. As part of that deal, America's largest auto maker granted over 4,000 Delphi employees the right to return to GM.

Now, those workers are taking General Motors up on its generous promise. GM will take responsibility for their wages and benefits, to the tune of up to $11 billion in increased company costs, all without adding a penny of revenue.

This is a staggering blow for GM, which, like Ford, is already struggling to stay afloat -- despite an increasingly excellent and popular product line -- under the weight of its defined benefit pension plan. And those chickens are already roosting, beginning with…