“A deeper level of junk”

Boy, you don’t see a phrase like that very often. From the Economist: “Delphi's bankruptcy highlights the danger of ballooning legacy costs—namely pensions and health care—and is further bad news for its main customer, General Motors.”

Reckoning that GM will not be able to escape a) supply disruptions if Delphi plunges into open warfare with its workforce and b) some contribution, perhaps as high as $11 billion, in pensions and benefits to Delphi’s past and present employees, both Standard & Poor’s and Fitch have cut the carmaker’s bond ratings to a deeper level of junk.

And here’s a related article – “Now for the reckoning”:

The numbers are awful. GM's credit rating was lowered again by Standard & Poor's on October 10th. GM expects to spend over $5 billion this year on health care alone, up by $1 billion since last year. That adds up to about $1,500 for each car made by GM, or some 3% of the firm's revenues. Much of this money is for GM's former workers: it now provides health insurance to over 1m retired Americans.

And from the WSJ, excerpted on Free Republic:

General Motors Corp. has signaled to the United Auto Workers union that an agreement to cut GM's $5.6 billion annual U.S. health-care bill must come within the next few days, or the company could act unilaterally to cut UAW health-care spending, among other cost-cutting moves, according to people familiar with the matter.

Analysts at the Bank of America now estimate that there’s a 30% chance that General Motors will declare bankruptcy, up 10% after the Delphi announcement.