General Motors Corp. said on Wednesday that it was shifting 20 %of its pension assets to bonds from stocks in a bid to protect the assets of plans that is overfunded by $17.1 billion.
On a conference call with analysts and investors, GM Chief Financial Officer Fritz Henderson said the automaker had undertaken the asset shift at the end of 2006 and early 2007.
"What this is intended to do is reduce the expected volatility of asset returns in the plan's funded status, and frankly lower the probability of any future [funding] requirements," Henderson said.
When one of the analysts mentioned to Henderson that the move was well timed before the recent decline in U.S. stocks, Henderson responded, "So far. Never forget luck."
While stocks were in positive territory in mid-afternoon trading Wednesday, the Standard & Poor's 500 had lost nearly 5 percent in the last two weeks.
The automaker said its pension plans will now be invested about 52 percent in global bonds, 29 percent in global equity, 8 percent in real estate and 11 percent in alternative investments.
"With the pension plan successfully overfunded, the issue is you want to stay that way," said Henderson. "Because as you find, and we did find '02 and 03 you can actually blow a hole in your pension plan real fast if you have a pretty significant change or dislocation in equity markets."
GM had a 15 percent return on pension assets in 2006, well ahead of general market performance and an improvement on the strong 13 percent return on assets in 2005. Because of the shift of asset allocation, GM lowered its expected return on assets for 2007 to 8.5 percent, down from the previous assumption of a 9 percent return.
Shares of GM (down $0.42 to $30.09, Charts) were little changed in morning trading on the New York Stock Exchange.
GM competitors include Ford (down $0.11 to $7.53, Charts), DaimlerChrysler (down $0.13 to $68.86, Charts), Toyota (down $0.76 to $129.99, Charts), and Honda (down $0.23 to $35.54, Charts).