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GM says pension obligations "manageable"

By Michael Ellis

DETROIT, Aug 20 (Reuters) - General Motors Corp. Treasurer Eric Feldstein said on Tuesday that the company's hefty U.S. pension obligations are manageable, and the company is still targeting earnings of $10 per share by mid-decade.

"GM's funding obligations appear quite manageable," Feldstein told analysts and reporters on Tuesday. "GM continues to target its $10 (earnings per share) by mid-decade," he said.

Decades of plant closings, job cuts and generous retirement packages have left GM, Ford Motor Co. and the Chrysler arm of DaimlerChrysler AG with hefty U.S. pension obligations. Those "legacy costs" put them at a competitive disadvantage to overseas automakers, which are largely non-union in their North American plants, a younger work force and fewer retirees.

Some analysts estimate that the costs of supporting its retirees costs GM $1,000 per vehicle.

Due to the sharp sell-off of the stock market, GM's U.S. pension fund has lost three percent on its investment during the first six months this year. GM's $67 billion pension plan covering more than 630,000 active and retired U.S. workers began the year underfunded by $9 billion.

But the pension plan is very sensitive to interest rates, Feldstein said, and a rise in rates could dramatically improve the funded status of the plan.

Feldstein said expenses for the pension plan will likely rise this year, but will be offset by further cost cutting and more contributions to the plan. GM has already contributed $2.2 billion to the plan this year.

Ford and Chrysler have also lost money on their pension plan investments this year, but GM's is in the deepest hole. However, Feldstein noted that GM is more profitable than its two domestic competitors and generating more cash, and so is in a better position to make contributions to its pension plan.

Feldstein also said that, under accounting rules, GM is not required to make any contributions to its pension until late 2006.

Depending upon the return of its pension investments, GM could expect to have to contribute, before taxes, between $6 billion to $12 billion to the plan through 2007, GM officials said.

GM has generated $4.8 billion in cash through the first six months this year, and expects to raise at least another $4.2 billion from its planned divestiture of its Hughes Electronics Corp. unit.

GM has faced bigger obstacles with its pension plan, Feldstein said. In 1993, its U.S. pension plan was underfunded by $18.5 billion, and it contributed over $22 billion to the plan from 1993 to 1995.