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  • A Full 10% of General Motors Bailout Paid Back

    General Motors CEO Ed Whitacre should have thought twice about the title of his Wall Street Journal op-ed, “The GM Bailout: Paid Back in Full.” GM did announce that it would repay the $5.8 billion ($4.7 billion to U.S, $1.1 billion to Canada) remaining balance on the loans the automaker received from the U.S. and Canadian governments. GM is making good on the repayment early – the company had until 2015 to repay the full $8.4 billion loan. But the reality is that this accounts for only 10 percent of the full taxpayer bailout.

    The loan repayment is a sign of progress for the struggling automaker, an undeniably good thing. With 90 percent of the taxpayer’s funds tied up in government-controlled equity, there’s still a long way to go to right this ship. Real progress will be made when the government turns GM back to the private sector.

    The bigger issue is what’s not being returned and that’s the $52 billion in equity, which is 90 percent of what the taxpayers shelled out and allowed the government to take a 61 percent stake in the company. Putting the company back on the stock ticker would require an initial public offering (IPO), something Whitacre says is “a real possibility” because “the stock could be worth a lot.” Others are less optimistic. Paul Ingrassia, author of Crash Course: The American Automobile Industry’s Road from Glory to Disaster says,

    “It won’t be easy for an IPO to raise $52 billion for the government shares. That’s more than Ford Motor’s current market capitalization, some $48 billion. And Ford, the only U.S. car company to avoid bankruptcy, already is profitable, which GM isn’t. For GM to show sustained profits means doing business in a new way and breathing new life into long-moribund brands.”

    Keep in mind, that’s for 61 percent of the company. There are encouraging signs; GM is cutting costs where possible and sales are up, but they are far from being out of the woods. It’s important to highlight GM’s progress and while Whitacre acknowledged the road ahead will be tough, he shouldn’t mislead the taxpayers by saying the bailout worked and was repaid entirely.

    Posted in Economics [slideshow_deploy]

    18 Responses to A Full 10% of General Motors Bailout Paid Back

    1. Nico, Anaheim says:

      Even the money they did pay back they got from a TARP loan. So in reality they didnt pay it back. They took money from one govt handout and paid back a previous govt handout. Why was this not mentioned?

    2. Stephen - Alabama says:

      I have never owned a vehicle that wasn't a GM product. I shall never purchase another Government Motors car. The bailout was to appease the mob – union or GM would have just filed bankruptcy at the start.

    3. Bllie says:

      "paid back in full, with interest, five years ahead of schedule." GM advertisement on the radio. Yep, backed by government intervention, ad probably paid for by tax payers too.

    4. James says:

      GM stated that it repaid its loan in full with interest. This loan was a Term Loan with a stated interest of 7% and due dates. GM paid off this term loan in full. The US Govt also received 2.1 Billion in Preferred Stock with a 9% stated interest which they have been paid interest also every 3 months. The US Govt also received Common Stock in GM. The US Govt could sell its Preferred Stock today if it wished, GM can not force it to sell them. Even after the IPO the US Govt might sell its Common in stages or all at once it depends on the market. Today in China a young couple 29 years old, have just brought a new Buick Regal, and are awaiting the GM IPO to buy shares for their future. GM has paid back it Loans in full with interest, next stop IPO.

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    6. Selim, San Antonio, says:

      For the record, the title of the op-ed as submitted by GM to the Wall Street Journal was "Loan Repayment Shows GM Progress." The title that appeared in the Journal was written by the Journal. Thank you

    7. Russ, Idaho says:

      The Heritage Foundation is a Fox think tank. Nothing but propaganda and misinformation about policies that would benefit the average working American.

    8. adam, portland says:

      GM did not pay the loan back in full with its own earnings money, it actually withdrew money from a TARP escrow account (part of our taxpayer money) and re-payed with that. So essentially GM re-payed the loan with another loan. Here is the full story:

      http://www.foxnews.com/opinion/2010/04/23/did-gen

      The new commercial is BS. Please spread the news.

    9. Jimbo says:

      Ha HA what a slight of hand: Payed back a bailout with another bailout. GM is NOT generating a profit, and did not contribute a penny to this "payback". This is another headline from the ministry of truth to pull the wool over the sheeple's eyes.

    10. Aaron, Ohio says:

      James, are you just oblivious or what?

      Anyhow, there is another, more expansive take on this mess in a Forbes.com piece:
      http://www.forbes.com/2010/04/23/general-motors-e

      My favorite part:

      "Sean McAlinden, chief economist at the Ann Arbor-based Center for Automotive Research, points out that the company has applied to the Department of Energy for $10 billion in low (5%) interest loan to retool its plants to meet the government's tougher new CAFÉ (Corporate Average Fuel Economy) standards. However, giving GM more taxpayer money on top of the existing bailout would have been a political disaster for the Obama administration and a PR debacle for the company. Paying back the small bailout loan makes the new–and bigger–DOE loan much more feasible.

      In short, GM is using government money to pay back government money to get more government money. And at a 2% lower interest rate at that. This is a nifty scheme to refinance GM's government debt–not pay it back!"

    11. stirling, Pennsylvan says:

      I guess the term "Government Motors" wasn't much of a good PR move for them. I personally laughed at the comercial "paid in Full" when I saw it. As far as I'm concerned until GM is no longer controlled by the government's Public Sector Arm, but is actually back in Private sector control, I will never support or purchase a vehicle from them (even though my tax dollars for some reason will be). Anyone who understands where the money is going in washington can see that what is owned by the government is always subsidized by the taxpayer, which creates Zero wealth for the private sector (you and me.)

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    13. Frank Nelson, Alabam says:

      I think that 'Big Ed's remarks are reprehensible. It's obvious he's trying to insinuate that GM has paid back it's loan(s) in full, which is a lie. They took cash which was in escrow and gave it back, which does not constitute paying back >$52billion. If he would mis-lead the public like that, what else would he not be upfront about. He's an Oklahoma snake-oil peddlar. Just the kind of person, and action that GM doesn't need at a time like this. This takes them five steps back for the one step they have made forward.

    14. ejhickey says:

      GM used borrowed money to back a loan. That the head of a major corporation thinks this is admirable is appalling. I think as a society , we are doomed.

    15. John Fawcett - Kansa says:

      GM. No thanks. My next car will be a Ford.

    16. Young, G.W. says:

      I don’t understand what the big deal is over what was put in the head lines? The thing that many people seem to be missing is, GM is an American company. It employs many Americans. Yes I know there are GM plants all over the world. But GM is known all over the world as and American brand.

      The facts are GM mismanaged is funds. GM then took a bailout offered by a US Government that was put into office by YOU! If you don’t like it, get involved and Vote.

      GM is an American Icon. Get behind what is ours. They are building better cars and doing there best to pay back the loans. What more do you people want?

    17. dabouv says:

      Govt. bail outs suck. Let's stop them all. So we can start with wallstreet. Then lets cut off the farm subsidies. Then lets look at the bailouts we do for the defense industry, I mean cost overruns. Maybe we need to stop the corporate sweetheart deals, what is the difference b/t a bailout and paying Exxon a tax refund despite being really profitable?

      Maybe we need to do some investigation of the scam that American corporations are running in the Caymen Islands?

      I have no idea of how good or bad the bail outs were and neither do any of you. If GM emerges as a better company that is profitable then I'd say it worked. It is so much more complicated than you ass clowns who are anti Obama make it out to be. It isn't just GM, it is the dealerships (the same ones that your side likes to complain about getting shut down by the govt), the suppliers, all the employees, all the jobs that are sustained by the money the employees spend, etc…

      Don't forget that Cheney and co. decided to kickt his problem down the line instead of deal with it, it isn't an easy problem and choosing not to act wasn't an option.

      I love the idea of the Volt (which predates Obama by a long ways). Fossil fuels were the fuel of the 20th century but there days are numbered. I imagine t hat for the next 10 years t hat will still be the case, maybe 20 years but doubtful in 50 years.

      Almost all technology was subsidized initially. The option otherwise is to the the market work it out and that would likely lead to little progress until a crisis hit. I also don't trust business anymore than the govt. I have seen enough Enron's, Hallibarton/KBR, BP, Goldman Sachs, insert meat packing company name here, pharaceutical company hijinks to realize that corporations are run by greedy bastards with little principle. Why stay with a company for 20 years and build the product and brand loyalty when you can make 100,000,000 in a year and be set for life based on 1 years salary.

      As a fiscal conservative and "old time " Rep. who still has those values I cannot fathom voting Republican for the next decade.

    18. Greg Green, SoCal says:

      From dabouv:

      "Govt. bail outs suck. Let's stop them all…wallstreet…farm subsidies…defense…"

      I agree w/ everything but DOD. Some skills, like ship, fighter, tank, and classified materials building need to be kept active or we lose the skilled workers; Defense is a constitutional mandate.

      "what is the difference b/t a bailout and paying Exxon a tax refund"

      As a self-professed fiscal conservative you should understand the difference between a bailout, where a company gets somebody else's money, and a tax-break, where a company keeps their own money.

      "I have no idea of how good or bad the bail outs were and neither do any of you."

      Well we do know how bad the bailout is, especially now that they've had their IPO. But even before that the GAO predicted in late 2009 that the taxpayers wouldn't get their money back.

      And we knew that in the bailout process the regular Chapter 11 bankruptcy restructuring laws got bypassed and the secured bond holders were abandoned by the US Govt., as were many GM dealers who were shut down in an arbitrary process. In comparison the UAW received favored treatment. This looked more like an Obama campaign contributor bailout than a GM bailout.

      We also knew that GM would be able to carry forward some $13B in tax breaks from the previous year, something they wouldn't have been able to do in a real bankruptcy proceeding. This taxpayer gift may total $40B over the next few years. This is important because GM has tens of billions of dollars of contractual payouts to UAW retirements funds and other UAW obligations, something that would've been restructured in a real bankruptcy. Obama gave the UAW a win at the taxpayer's expense.

      We also knew that GM/UAW got a bail out of about $50B. About $6B was a loan from Treasury at 7% interest. The rest was stock purchases. GM's "loan payback" was actually a $10B loan from the Energy Dept. at 5% interest that was used to payback the $6B Treasury loan at 7%. In other words, GM refinanced their taxpayer loan at taxpayer expense…and GM has increased their obligation to the taxpayer by an additional $4B!

      Now that some of the taxpayer owned stocks have been sold in the IPO for some $13B, there still is money owed to the taxpayer. The rest of the stocks will have to be sold at about $53 per share in order for the taxpayer to break even. But that's if the industry can ramp sales from "10.8 million this year to 17 million in 2014 and GM captures 20 percent of these sales," according to Global Insight's George Magliano.

      That looks tough for GM. In more than a year GM's share of the market has been just below 20%, and as low as 17% in March 2010. It climbed back to 19.3% in October.

      In comparison Ford's stock price is about $16 and they have no bankrupcty stigma, solid profits, and a market share of about 16%. There's little justification for expecting a GM's stock to be priced more than 3x Ford's stock.

      "Don't forget that Cheney and co. decided to kickt his problem down the line…" You mean Pres Bush, and he actually announced the bailout in Dec 2008, though it was only about $17B for both GM and Chrysler. Obama didn't invent the bailout, but expanded it and skewed it to the UAW's benefit. The bailout was a bad idea under Bush and Obama made it worse.

      "I love the idea of the Volt…" You like paying $40,000 for a $20,000 car? GM needs more customers like you. In terms of build quality it's worth $20,000, and in terms of fuel efficiency a $30,000 hybrid or diesel will out perform this.

      "Fossil fuels were the fuel of the 20th century but there days are numbered." I still think we're closer to the beginning of the oil age than the end. Since the 70s geologists have discovered more oil than we've used.

      "Almost all technology was subsidized initially." Really? Cars, light bulbs, telegraph, telephone, electrical generation and transmission, steam engines, digital electronics, television, PCs. I think it's more accurate to say that Almost all technology was NOT subsidized initially.

      "As a fiscal conservative and "old time " Rep. who still has those values I cannot fathom voting Republican for the next decad"

      You should look up the words fiscal and conservative, because I don't think they mean what you think they mean.

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