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A Full 10% of General Motors Bailout Paid Back

Posted By Nicolas Loris On April 23, 2010 @ 2:07 pm In Economics | Comments Disabled

General Motors CEO Ed Whitacre should have thought twice [1]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 [2]“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 [3],

“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 [3]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.


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URL to article: http://blog.heritage.org/2010/04/23/a-full-10-of-general-motors-bailout-paid-back/

URLs in this post:

[1] should have thought twice : http://online.wsj.com/article/SB10001424052702303491304575188473069446344.html

[2] says is : http://www.nytimes.com/reuters/2010/04/21/business/business-us-gm.html?_r=1&dbk

[3] says: http://online.wsj.com/article/SB10001424052748704133804575198262088791270.html?mod=WSJ_Opinion_LEFTTopOpinion

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