DETROIT (Reuters) -- An influential Wall Street analyst said on Friday that Detroit's Big 3 may have understated their U.S. pension obligations by billions of dollars because they assume no future increases in pension benefits.
In a report, which General Motors disputed, Goldman Sachs analyst Gary Lapidus said GM, Ford Motor Co. and the Chrysler group assume pensions for their U.S. hourly employees will not increase after labor contracts expire in September.
While that tactic conforms with accounting standards, Lapidus said it doesn't jibe with past experience, since pensions usually increase with each new labor contract. He calculates that over the past 30 years, benefits have increased at an annual rate of about 5 percent.
"We don't know what the long-term inflation rate on hourly pension benefits will be, and neither do the Big 3," Lapidus said in a research note. "On the other hand, we think it is safe to say that it is not, nor will it be, zero."
Lapidus said that if the automakers assumed a 3.5 percent inflation rate, GM's pension obligations would grow by $22 billion, Ford's by $9 billion and DaimlerChrysler's by $6.6 billion.
That would double the underfunding of each company's pension, a move that Lapidus said could drive down the share prices by as much as 70 percent in GM's case.
"We don't expect the automakers to change their accounting or key assumptions, but investors value stocks based on economic reality, not accounting fiction," Lapidus said.
GM spokeswoman Toni Simonetti called the report "a lopsided analysis," saying Lapidus did not apply the same kind of analysis to other estimates that would improve the companies' pension outlook.
"The bottom line is, the calculations are flawed, the premise is flawed, and his conclusion significantly overstates the effect of what he is trying to propose," she said. The report's "apparent objective is to generate a headline for the firm, and that wouldn't be the first time."
Ford and Chrysler had no immediate comment.
The Big 3 have been struggling to fund their pension plans over the past couple of years. GM, which has about two retirees for every active U.S. hourly worker, made the largest debt sale in history this summer to reduce its pension underfunding.
Vickie Bajtelsmit, a professor of finance at Colorado State University, said given the number of estimates that go into calculating pensions, it should be no surprise that companies use the most favorable assumptions -- and investors should take that into account.
"In general, if they (investors) recognize that the stated liabilities are lower than what they would be if these liabilities were estimated in a different way, that has to affect their assessment of the market value of the firm," she said.