GM pays back $6.7B in government loans by using a $13.4B government funded escrow account in order to secure $10B in new government loans.

By mw | Related entries in Bad Decisions, Bailouts, Cars, Corporate Business, Democrats, Economy, Fiscal Responsibility


All week I’ve watched GM CEO Ed Whitacre walking down a factory floor in a GM advertisement, crowing about repaying government loans while saying he could respect the opinion of those who did not want to give GM a “second chance”. It is good to know that Ed can respect my opinion of the bailout. He might be interested to know that my current opinion is that his claim that GM repaid the loan from the US Government in full and ahead of schedule is more than a little disingenuous. I hope Ed still respects me.

Shikha Dalmia at Forbes goes beyond opinion and actually does the homework:

GM CEO Ed Whitacre announced in a Wall Street Journal column Wednesday that his company has paid back its government bailout loan “in full, with interest, years ahead of schedule.” He is even running TV ads on all major networks to that effect–a needless expense given that a credulous media is only too happy to parrot his claims for free. Detroit Free Press‘ Mike Thompson, for example, advises bailout proponents to start “warming up their vocal chords” to jeer their opponents with chants of “I told you so.”

I wonder – Does Mike Thompson really believe that anyone beside himself would uncritically accept the GM PR, advertising, and administration spin at face value and say “I told you so!” C’mon, Mike. Who would do that?

But I digress. Shika explains how the shell game worked:

“…the Obama administration handed GM only $6.7 billion as a pure loan… The vast bulk of the bailout money [$49.5B] was transferred to GM through the purchase of 60.8% equity stake in the company–arguably an even worse deal for taxpayers than the loan, given that the equity position requires them to bear the risk of the investment without any guaranteed return.”"…the Obama administration put $13.4 billion of the aid money as “working capital” in an escrow account when the company was in bankruptcy. The company is using this escrow money–government money–to pay back the government loan.”

“…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.”

I said this was like a carny shell game, but that is not fair – to the shell game. In a shell game a bean is presumed to be placed under one of three cups, and the mark is fooled by quick manipulation of the cups into guessing and betting incorrectly where it might be found.

In GM’s case, the administration just keeps stuffing more and more of our money into the company’s pockets, the company moves some of the money from one pocket to another, gives a little back, and finally both the company and administration publicly misrepresent what is taking place. When all is said and done, GM winds up owing taxpayers more money than before they “repaid” the loan.

But, no worries. We’ll get the money all back. Someday. Over the rainbow. Just as soon as the 72.5% of GM company stock that US and Canadian taxpayers own is worth as much as they are owed and can be safely sold to repay it. The GAO suggests this may happen just as soon as….

” It concluded in a December report (which a more recent April report has said nothing to contradict, despite media spin to the contrary) that: “The Treasury is unlikely to recover the entirety of its investment in Chrysler or GM, given that the companies’ values would have to grow substantially more than they have in the past.”

… hell freezes over.

Hat tip to McQ at Questions and Observations who sums it up with this depressing observation:

“…it’s actually worse than first imagined.”

In the meantime, as taxpayers, we can take comfort in the knowledge that our money is being used to prop up a failed competitor and make life harder for the Ford Corporation. Ford is a well run American company that took the hard management decisions necessary to survive in a tough environment and made the right management decisions to earn the respect of all Americans. Ford continues to innovate and build new products out of their own capital and profits, not requiring or requesting any government handouts. And we are all paying to subsidize their competitors.

We can all sleep better knowing that our tax dollars are being used to undermine a great American company that did the right thing by reanimating their zombie competitors.

I guess I’ll just have to be satisfied with the knowledge that since GM and Chrysler took my money against my will, they’ll never get a dollar from me willingly to buy one of their cars. It’s something.

Cross-posted from Divided We Stand United We Fall


This entry was posted on Tuesday, April 27th, 2010 and is filed under Bad Decisions, Bailouts, Cars, Corporate Business, Democrats, Economy, Fiscal Responsibility. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

17 Responses to “GM pays back $6.7B in government loans by using a $13.4B government funded escrow account in order to secure $10B in new government loans.”

  1. Tweets that mention Donklephant » Blog Archive » GM pays back $6.7B in government loans by using a $13.4B government funded escrow account in order to secure $10B in new government loans. -- Topsy.com Says:

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  2. Justin Gardner Says:

    What you fail to mention here is that GM is using that money because it now doesn’t need it.

    NEWS FLASH: That’s a good thing!

    Or, by your logic, they should hold on to the money we gave them instead of paying the loans off? How would you have them pay us back? Do you want them to make profits and give THOSE to the government instead of using the money we already gave them? Sorry, but I’m really struggling to understand your logic here apart from making something appear bad that actually is anything but.

    Also, they’re ADDING jobs. So the sooner they can pay off those debt obligations, the quicker they can make a public offering and the sooner we can sell back that stock and make our money back.

    Last, if you don’t think the government is going to get a good price for the stocks…you might want to check out the profits they made when the TARP banks paid back their money…with interest.

    First the thumbs up on the Remember November ad and now this? Ugh.

  3. Justin Gardner Says:

    Also, and I failed to mention this, would you not have them get access to the retooling money so they can stay competitive? Would you rather that money go to foreign car companies?

    Seriously, it just feels like you want these companies to fail. I could be wrong about that, but convince me otherwise.

  4. Nick Benjamin Says:

    This isn’t very good spin. GM borrowed a bunch of money. They didn’t need it all, so they’re paying a bunch of it back. That’s good news.

    Obviously it would be better if they used profits to pay the loans off. But in this economy I will take my victories where I can get them.

  5. gerryf Says:

    MW,

    Thanks for the read. Very informative. I share your outrage at the disingenuous crowing over repaying a loan while only telling half the story. It is, pure and simple, a PR stunt.

    However, I would still make the loans and the capital investment.

    No matter how much people tout the free market, practicality trumps philosophical adherence to an unrealistic idealogy. This country needs a manufacturing base and it needs the jobs provided by that manufacturing base.

    The Reason Foundation is hardly an unbiased observer of the situation and have put a decidedly ugly spin on a stupid PR stunt, but in addition to what Justin and Nick have said, is there something wrong with GM applying for DoE loans to retool plants and achieve better CAFE standards?

    Should GM be excluded from doing so? That doesn’t make a lot of sense.

    I agree that GM was given an assist to Ford’s detriment, but if the alternative was GMs demise just to satisfy an adherence to free market fantasy, then its a deal that needed to be made.

  6. Mike A. Says:

    Damn,
    Hoping for GM to fail so I could get a car on the cheap. Now THAT’S capitalism!

  7. The Realizer Says:

    Hey Sharpies,

    If GM paid the funds back because they are in such good shape that they don’t need the funds anymore, why in the Wide World of Sports would they be applying for a $10B loan from DOE?

    Taking away the additional $10B loan, if GM, in fact, doesn’t need the money, WHY do they not need it now?

  8. Justin Gardner Says:

    The Realizer…this is an extremely common business practice.

    If you can pay down a higher interest loan and get a lower interest loan to take its place, or, in this case, only part of it (since GM did pay back a net part of their loan) …that’s a smart business move. Because you’re not paying more interest.

    I’m so disgusted with how twisted this conversation has become. GM did what other smart corporations do EVERY. SINGLE. DAY.

  9. Angela Says:

    Other smart corporations don’t typically borrow money from the government Justin just to keep their heads above water. Smart corporations make a profit.

    Saving on interest is a smart business move.

    GM screwed us over a few times in the past by closing plants and reopening operations overseas. Just want to point that out.

    Our interest in keeping GM afloat is jobs, mostly. Well, WE THE PEOPLE need to ask GM “What have you done for me lately?” In other words, what are you doing to improve your business or is this 10B going into a black hole? What does GM have in place, or what indications are there to show they’re on the road to profitability? If its business as usual at GM, I would want include stipulations with any loans we give them.

  10. cranky critter Says:

    The government is on the hook for GM’s pension liabilities if it fails. That’s why it makes sense to keep the company afloat. That decreases the total liability. At least if they keep making and selling cars, there’s a revenue stream.

    If GM had kept all its operations in the US and paid prevailing UAW labor rates for all production, it would have gone under a decade ago at the hands of competitors. Nobody wants to face the truths of a global labor market. No, it has to be the simplistic tale of the evil corporation screwing loyal hard-working Americans. Never connect two dots if that creates an inconvenient truth, right?

    Seriously, it’s like people don’t understand what “global economy” means. It means American workers must compete with hungrier, more grateful workers in the rest of the world. These are workers who would view the stagnant standard of living we’re all bitching about as more than they ever dared to hope for.

    Via modern communication, the “american dream” has been exported in movies and television, and the internet. And much of the rest of the world is more willing to work for half of what most of us think we deserve as a birthright.

  11. Tully Says:

    Let’s not forget that $30 billion or more we’re still in the hole on GM stock. Or the $45 billion in tax deductions the admin bent the law to give them as an Xmas present. That latter’s a gift that REALLY keeps on giving. Don’t be counting on corporate tax revenues from GM to help cover that gap, at least not anytime soon. Their market capitalization as of today is only $33B. It’s gonna take a long time for GM to use up those tax credits and pay dime one in federal tax revenues.

    It would have been far cheaper to the taxpayers to let GM go under and the PBGC cover the pensions. But PBGC rules do not cover 100% of promised benefits and do not cover those promised sweetheart union medical coverages for retirees, so the unions would have been unhappy with Obama.

  12. cranky critter Says:

    Wow, I just assumed the liabilities had to be much greater without any revenue stream. Of course, you have to count the jobs for something.

  13. Tully Says:

    Realize that the jobs would not all have been gone had GM gone through a normal bankruptcy. GM wasn’t going to vanish and cease all production. It would have continued manufacturing under new ownership.

    But the union’s benefit plans would have taken a big hit right along with the other creditors. The way the admin rigged it, the union came out near-whole, the stockholders and other creditors got screwed, and the taxpayers picked up the tab for making the union happy … and for leaving those $45 billion in loss carryovers intact to exempt the new GM from many years of paying taxes at all, which is a large part of having the ablity to keep the unions whole. With post-deal ownership split between the government and the union. Stockholders in the old GM got bupkis. They are the 99% …

    Of course, the new GM corporation issued new public stock, and we the taxpayers sold some of ours then. The issue price was $33/share, and or basis (optimistically) was near $50/share. Today’s quote is $20.50. So as taxpayers we successfully screwed investors in the new GM also while still losing money! And the union pension plans are still underfunded by about the same amount as the total market cap of the stock.

    Be nice if the Obama admin would make whole all those whose retirement accounts got hammered to help keep those union pensions afloat. This was a direct wealth transfer from the general public to the unions.

  14. Angela Says:

    If the governments only concern regarding GM is the companys underfunded pensions, we would have let GM go through a normal bankruptcy and paid the 18billion to cover pensions instead of the 45billion. Its not just about jobs, its about UAW jobs.

    No U.S. company should be forced to have to pay pensions so fat that a retiree of 30 years draws a pension of over $3000/month. Its ridiculous. Nor should a company be forced to pay wages more than twice the average going market rate.

    By the way, a majority of Americans don’t get pensions through their employer. A majority of Americans make an average wage of $10/hour. The American worker, in general, is not spoiled.

    GM will keep its loss carryover on its books for years to come. The company will not have to pay any taxes.

  15. cranky critter Says:

    No U.S. company should be forced to have to pay pensions so fat that a retiree of 30 years draws a pension of over $3000/month. Its ridiculous. Nor should a company be forced to pay wages more than twice the average going market rate.

    OTOH, if instead of being forced, you happen to have entered into a voluntary contractual obligation to do so . . .

    Not defending the unsustainable sweetheart deals. Just pointing out that while there’s a story of shared blame between management and labor, when it comes responsibility time, which parties got off scott free?

  16. Angela Says:

    Sorry Cranky, perhaps “forced” is not the most accurate term.

    Government intervention in the protection of unions has created a monster in the existing unions. On the other hand, I wouldn’t vote for the breaking up of unions or worse, illegalizing unions, if you know what I mean. Unions have a place and a purpose. The sad thing about this country is that we tend to take liberties to their extreme, so what started as a defensible ideal, becomes a thorn in the side of liberty and freedom itself. Whose liberty do we protect? Whose freedoms?

    The courts have pretty much been a deciding factor on how far we allow these legislated liberties to go.

    GM really is more of a multi-national company. I foresee that as we move into becoming more global, there will be more companies operating as multi-nationals but anchored and beholding to a single national government. In my view, this may pose a problem to the free global market.

  17. cranky critter Says:

    Agreed Angela. Just today, I told someone something like “if you’re fair-minded, then you know BOTH that blue collars workers would not have seen nearly as big a rise in their standard of living without unions AND that unions went too far and have crafted expectations that are no longer sustainable.”

    We won’t need to vote to break up unions or make them illegal in any instance where labor is portable. Global competition will take care of that whether we like it or not.

    When it comes to public employee unions, we may have to vote for leaders who are willing to downgrade sweetheart deals where they endure. Regular folks are coming to resent paying taxes for the deals some gov’t workers get. In particular, if you are hurting a little more every year because healthcare keeps going up, you WILL resent it if your local teacher’s union doesn’t contribute to their healthcare coverage in a way similar to how you do. That seems natural and thus eventually inevitable to me.

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