Financial advisers who cater to workers in the automotive industry are scrambling to prepare their clients for the onslaught of job losses that will follow General Motors Corp.'s filing for bankruptcy protection last week.
Financial advisers who cater to workers in the automotive industry are scrambling to prepare their clients for the onslaught of job losses that will follow General Motors Corp.'s filing for bankruptcy protection last week.
“All my clients who are employed are terrified they'll lose their jobs,” said Tim Herbert, an adviser in the Auburn Hills, Mich., office of Centaurus Financial Inc., which has more than 500 clients who either work at GM or are recently retired from the Detroit-based company. “They've seen all of their co-workers lose their jobs. The people being affected are the good-performing people, and I'm telling them we need to plan for the worst.”
Centaurus is based in Orange, Calif.
To do that, Mr. Herbert, whose firm manages $150 million, this week will host two workshops aimed at highlighting cash flow survival strategies for his GM clients.
“I'm telling them that we're staying toward more defensive allocations,” he said. “We're building up cash reserves and acting more defensively.”
GM's filing Monday wasn't a surprise, but the news was unsettling for the automaker's tens of thousands of employees — particularly those in or close to retirement. And even though advisers who deal with those employees have been preparing them for months for the possibility of such a filing, many spent much of last week trying to calm the nerves of their anxious clients.
“Everyone around Lansing [Mich.] is totally affected — even if they don't work for GM,” said Ted Feight, president of Creative Financial Design, an advisory firm in Lansing with about $25 million in assets under management. “Everyone is trying to figure out what to do next, and no one is spending.”
The automaker's bankruptcy filing is the fourth largest in U.S. history. The company plans to cut 21,000 of its remaining 62,000 hourly workers in the United States by next year.
The firm has already slashed 3,400 white-collar jobs this year and officials last week announced plans to slash 3,000 more by yearend.
Advisers say that's just the tip of the iceberg. The bankruptcy filings of GM and Chrysler LLC of Auburn Hills, Mich., will cause the loss of thousands more jobs as automotive suppliers also resort to cutbacks.
DEFENSIVE STRATEGIES
Many advisers are shifting their working clients' assets into more-conservative allocations in case they need to dip into the accounts.
Others are telling clients to put the kibosh on any spending and to refinance their houses while they're still employed, even if it means going from a 15-year mortgage to a 30-year mortgage.
Advisers hope clients who refinance can lower their mortgage payments, giving them extra cash to pay bills.
Even though GM has said it intends to preserve its defined benefit pension plan and does not want to transfer it to the Pension Benefit Guaranty Corp., retirees are still worried that a transfer is inevitable and the checks they count on will shrink.
“There's a big worry about what happens if the pension goes to the PBGC,” said Jeff Ivory, an adviser at Stonebridge Financial Partners LLC, a Bingham Farms, Mich., firm that manages more than $250 million in assets
“Even if the government comes out and doesn't put the pension plan on the PBGC, how will they be able to afford the pension liability?” he asked.
About 60% of Mr. Ivory's clients are affiliated with the auto industry.
Some of those clients already have been forced to dip into their 401(k)s to meet daily living expenses, he said.
Mr. Ivory, who worked at GM until 2002, said his automotive-industry clients appreciate honesty — even when he's telling them something they don't want to hear.
“I think with the families I'm dealing with, the biggest concern they have is to protect the lifestyle and what they've built,” he said. “My job's not for optimism, it's to plan for the worst-case scenario.”
As part of preparing clients for potential layoffs, Stephen Wedel, a partner and certified financial planner with Four Seasons Wealth Management LLC in St. Louis, said he's been evaluating health insurance and life insurance plans for the spouses of GM employees and other automotive workers.
SPOUSAL BENEFITS
“We're much more in tune with the spouses' benefits than we've been in the past,” he said.
In many cases, his firm already has moved life insurance and certain benefits to the spouse's company. It's also reading employer policies about when a spouse can switch health insurance.
St. Louis has two Chrysler plants that are closing. Although GM has announced that its plant there will remain open, Mr. Wedel's firm has told clients who work at the company and at a firm that supplies products directly to GM to brace for job losses. Four Seasons manages more than $300 million in assets.
The fallout from the automotive bankruptcy filings will be devastating for clients who work at auto supplier firms, said Theodore T. Sadar, adviser and owner of Sadar Financial, a sole proprietorship in Akron, Ohio, that manages about $50 million in assets.
Several of his clients who worked at auto supply companies have been out of work for many months and have had to draw money from their retirement accounts.
“These firms that feed products to the automotive industry can't collect on invoices,” Mr. Sadar said. “Now, they're all doing badly.”
As part of the reorganization of automotive companies, it's expected that more health costs will not be covered by insurance, and Mr. Sadar said that even his GM clients who keep their jobs need to be prepared for added health care expenses.
“These people aren't familiar with what the real costs are with medical care,” he said. “We're helping to educate them about what real people have to pay for prescriptions.”
E-mail Lisa Shidler at lshidler@investmentnews.com.
