Paid back, in full, with interest, years ahead of schedule

| 1 Comment
Not so much. From Forbes:
Still Government Motors
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."

But before belting out their victory aria, GM-boosters ought to hear the whole story--not just the fairytale version about Government Motors' grand comeback that Mr. Whitacre is feeding them.

Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn't, the company, which couldn't raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) So when Mr. Whitacre publishes a column with the headline, "The GM Bailout: Paid Back in Full," most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion. That, however, is far from the case.

Because a loan of such a huge amount would have been politically controversial, the Obama administration handed GM only $6.7 billion as a pure loan. (It asked for only a 7% interest rate--a very sweet deal considering that GM bonds at that time were trading below junk level.) The vast bulk of the bailout money 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 Canadian government likewise gave GM $1.4 billion as a pure loan, and another $8.1 billion for an 11.7% equity stake. The U.S. and Canadian government together own 72.5% of the company.)

But when Mr. Whitacre says GM has paid back the bailout money in full, he means not the entire $49.5 billion--the loan and the equity. In fact, he avoids all mention of that figure in his column. He means only the $6.7 billion loan amount.

But wait! Even that's not the full story given that GM, which has not yet broken even, much less turned a profit, can't pay even this puny amount from its own earnings.

So how is it paying it?

As it turns out, 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.
And this is only the first half of the story -- G.M. is using our taxpayer money to pay back a loan so they can apply for another low interest loan of $10 Billion -- again, our taxpayer money. The payback of the $49.6 Billion has been pushed back. I have been a General Motors driver since the 1970's. My last truck was about 12 years old and was close to 200 thousand miles. I recently purchased its replacement:
new_truck_01.jpg

new_truck_02.jpg
Note the pretty blue oval logo...

1 Comment

You're going to love that truck! It is the younger twin brother of my 2000 model- same colors even. My truck still looks nearly new, runs perfectly and just needs some new tires to be ready for the summer trip to Oregon. It does everything I have ever asked of it and is far more comfortable than my buddy's Dodges.

You won't be sorry.

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This page contains a single entry by DaveH published on April 27, 2010 12:58 PM.

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