Have you seen the “New GM” TV ad in which Chairman Ed Whitacre claims that, “We have repaid our government loan in full, with interest, five years ahead of the original schedule”?
I was thrilled when I saw it. This repayment reaffirmed my belief in both the administration’s decision to bail out the auto industry and the automakers themselves. But like so much in the media today, it was only a half-truth. The devil lies in the details.
GM, or should I say “the new GM,” has paid back its government loan in full, but here’s the caveat: The money used to repay the loan came from a $13.4 billion dollar working capital escrow account given to them by the Obama administration. So GM is using government money to pay back government money. Hold on. It gets worse.
The reason they were allowed to use this so-called “working capital” to pay back the loan is so the White House could give them another loan (for $10 billion) to help them meet the new CAFÉ emissions standards, which were themselves imposed as a condition of the original bailout. In other words, the feds knew handing GM another $10 billion would not go over well with taxpayers, so they allowed GM to pay back its original loan with the government’s own money to make the new “bailout” a little easier to swallow.
If you think that’s appalling, how about this? GM was given either $49.5 billion or $52 billion as part of the bailout, depending on who you ask. After the loan repayment, the balance is about $42.8 billion or $45.3 billion, in which the US Government holds a 60.8 % stake in common and preferred stock. GM is planning to pay this money back through a public offering later this year. Unfortunately, GM’s market cap has never been $50 billion dollars, let alone 60% of it, so there is no way they are going to be able to pay back the full amount at that time. In fact, according to many sources, the US taxpayer should expect a loss of at least $35 billion dollars from the auto bailout. This doesn’t include the loans made to GMAC, the financing end of General Motors.
GM has cut back to the bare bones, and in the process eliminated tens of thousands of jobs while cheating people out of legacy benefits through a bankruptcy which wiped out $95 billion of debt. GM has posted a loss of $3.4 billion for the fourth quarter of 2009 and a staggering $88 billion loss from the last time it was profitable.
GM has lost the loyalty of the American people and having Mr. Whitacre tell half-truths is not the way to regain that support. I hope Chrysler, which is performing even worse than GM, will not follow in the same footsteps.
Photos Courtesy of General Motors and ericsundwall.com
Article courtesy of Chris Raymond