Chris Bicknell at Car Domain:
General Motors announced yesterday that they have fully repaid their government loan plus interest, five years ahead of schedule.
Although GM has has a lot of work ahead to get back on track, it seems like they are making steps in the right direction. I guess time will tell just how much they’ve learned from their past mistakes.
Matthew DeBord at Big Money:
General Motors’ CEO Ed Whitacre informed the public and media yesterday that GM will be paying back some of the many billions loaned to it by the United States and Canada. But more importantly, he went on the stump for a GM IPO, which could, and some say must, come before the November midterm elections. This is from the Detroit Free Press:
“I think the government and us — the taxpayers — made a terrific investment and I think it’s going to pay off big time,” said Whitacre, who later Wednesday chartered a plane to Washington, D.C., to meet with government officials.
He revealed new investments for factories in Detroit and Kansas City and said the company’s first-quarter results, due in May, are impressive.
He also said the highly anticipated Chevrolet Volt electric car would be released in October ahead of an expected November release.
Stephen Markley at Kicking Tires:
Following GM’s announcement today that it has repaid the $5.8 billion in U.S. and Canadian loans months ahead of schedule, you may be wondering how exactly the automaker managed this. The answer is a $16.4 billion escrow account set up by the Obama administration during GM’s bankruptcy. Those funds are in exchange for the GM shares that make up part of the government’s stake in the company.
The Treasury Department had to figure out how much of a cushion the company would need after emerging from bankruptcy. The escrow account was set up when the government bought a 61% stake in the company, but there was a string attached: GM had to get the Treasury Department’s OK before spending the money.
Thus far, it used the fund to pay out $2.7 billion for the Delphi bankruptcy resolution and previous loan repayments. Rules required any money left in the account by June 30 to be used for loan repayment. With the loans fully repaid, restrictions on the escrow fund will be lifted and GM will be allowed add the remaining $5.5 billion to its reserves.
So what’s the bottom line?
Essentially, GM no longer needs emergency government aid to stay afloat. While the taxpayer still has a sizable investment wrapped up in the automaker, GM has returned to decent health for the time being.
Philip Levy at American Enterprise Institute:
Here’s a little corrective perspective. According to the Congressional Budget Office, the government invested $48 billion in General Motors Company. Of that, $7 billion is in loans, and the rest in preferred and common stock. (It also invested $17 billion in GMAC, an affiliated company that is important for financing GM car purchases). U.S. taxpayers got a 60.8 percent stake in the post-bankruptcy GM and a 56.3 percent stake in GMAC.
So was this a good investment? The government was motivated by far more than pure financial return; it was worried about the systemic damage a liquidation of GM might cause. Even from a purely financial perspective, final tallies cannot occur until the government’s stake in GM has been sold.
One recent analysis by Andrew Bary in Barron’s speculated that GM might go public this year with a valuation of $50 billion, giving the taxpayer stake a value of roughly $30 billion.
If we assume that the payment in the news today clears the loan portion (Whitacre is claiming to repay all loans with interest), that leaves $41 billion invested. If the taxpayer recoups $30 billion in a privatization, that leaves them $11 billion light.
So, in this rosy scenario, even after full loan repayment, the taxpayer comes out about $11 billion short on GM alone (plus a normal return on holding $50 billion for a year). Where did that money go?
Bary elaborates that in this scenario, the United Auto Workers would get $16 billion. Normally, as unsecured creditors, the UAW would have gotten nothing until senior creditors, including the U.S. taxpayer, were repaid in full. These are not normal times.
Blue Texan at Firedoglake:
Fallen giant General Motors Co. accelerated toward recovery Wednesday, announcing the repayment of $8.1 billion in U.S. and Canadian government loans five years ahead of schedule.
The Obama administration crowed about the “turnaround” at GM and fellow bailout recipient Chrysler LLC, saying the government’s unpopular rescue of Detroit’s automakers is paying off.
Paying off loans with interest? So capitalist. Why doesn’t GM just name their next hemp-powered car the Obamamobile in tribute?
Look, Obama should be crowing — but let’s not forget where all this “socialism” started.
Jim Hoft at Gateway Pundit:
Someone needs to forward this to the loons at FireDogLake.
Government Motors repaid 8 billion of bailout money back to the US government this week.
They were awarded a total of $52 billion in bailouts from the US.
John D. McKinnon at WSJ:
A top Republican says General Motors’ announcement this week that it will repay its federal loans early is “nothing more than an elaborate TARP money shuffle.”
In a letter to Treasury Secretary Tim Geithner, Sen. Charles Grassley of Iowa fumes that the source of the funds for the $4.7 billion repayment is not GM earnings, but rather a Treasury escrow account. He chides the company and the administration for suggesting in recent statements that the money is coming from GM earnings.
Grassley writes that GM’s early repayment of the federal loan is aimed at diverting attention from another uncomfortable issue – the big break the car company would get on a proposed tax to recoup TARP losses. GM is expected to generate some of the biggest losses in the TARP program, but it won’t have to pay any money under the so-called TARP tax the Obama administration wants to impose on large financial institutions.
Treasury and GM officials don’t dispute that the money to repay the loan is coming from TARP funds. But they said that’s been clearly disclosed.
Scott Johnson at Powerline:
But that’s not all. GM does not appear to have repaid the public funds denominated a loan out of operating profits, as Whitacre’s column implies. Fox News reports the comments of TARP Special Inspector General Neil Barofsky: “I think the one thing that a lot of people overlook with this is where they got the money to pay back the loan. And it isn’t from earnings….It’s actually from another pool of TARP money that they’ve already received. I don’t think we should exaggerate it too much. Remember that the source of this money is just other TARP money.”
Barofsky told the Senate Finance Committee the same thing Tuesday, and said the main way for the federal government to earn money out of GM would be through “a liquidation of its ownership interest.” Senator Grassley comments here; Ed Morrissey has more.
Remember: Whitacre is the chairman and chief executive officer of GM. He isn’t some salesman peddling the goods (though he is doing that as well) with an allowance for puffing. If Whitacre’s column were subject to the securities laws, Whitacre would be guilty of fraud. Or so it appears to me.
David Boaz at Cato:
And finally, of course, most of the bailout money was transferred to GM in return for a 60 percent stake in the company. And the taxpayers will get that money back if and when GM becomes a publicly traded company again, provided that the company’s market capitalization is eventually higher than it’s ever been in history. Don’t hold your breath.
These are called GM ads, but they could just as well be called BS ads.
UPDATE: Nick Gillespie at Reason:
Gretchen Morgenson at NYT