Pension Costs to Cut GM Profit 26%

General Motors Corp. said earnings will fall about 26% this year because the cost of its underfunded pension will triple to $3 billion after a slide in the pension portfolio’s assets.

The world’s largest automaker expects profit of $5 a share in 2003, excluding its El Segundo-based Hughes Electronics Corp. subsidiary and certain expenses, compared with about $6.75 a share in 2002, Chief Financial Officer John Devine said.

GM, whose $76-billion pension obligation is the biggest in the U.S., said that without the higher retirement funding costs, earnings would have grown this year thanks to cost cutting and gains in domestic market share. The firm’s market share rose in 2002 as it introduced models such as the Hummer H2 sport utility vehicle and the Cadillac CTS sedan.

Investors, apparently pleased that GM’s 2003 estimate was no worse than Wall Street’s already lowered expectations, sent the stock up $1.29 to $39.50 on the New York Stock Exchange.

The Detroit-based company cut the expected annual growth rate for assets in its retirement fund to 9% from 10% after stock market losses shaved 7% from the value of its pension portfolio in 2002. The lower growth rate caused the estimated pretax pension expense this year to jump to $3 billion from $1 billion in 2002, Devine said.

U.S. companies have waited too long to adjust pension return assumptions, which may need to be cut deeper than at GM after three years of mostly falling stock prices, analysts said.

Investor Warren Buffett has advised companies to lower average annual pension return estimates to 6.5%, as he did at his Berkshire Hathaway Inc.

Companies in the Standard & Poor’s 500 index probably will reduce the expected rate of return on pension investments to an average of 8% from 9.3% last year, according to a report from Merrill Lynch & Co.