General Motors is making a big deal about its recent repayment of loans to the American and Canadian governments, claiming that the money the automaker borrowed in 2009 has been repaid, with interest, some five years before the funds were due. The automaker has been airing television ads featuring GM chief Ed Whitacre touting that its loans have been repaid in full.
Unfortunately, Whitacre has been playing fast and loose with his pronouncement. True, GM has repaid funds it borrowed, but Whitacre is only talking about a small portion of the taxpayer pot. Some $52 billion in additional money was invested in GM by American and Canadian taxpayers who now own approximately 60 and 12 percent of the company respectively. Those monies can only be recovered if and when GM begins to sell stock, something that doesn’t look like will happen before 2011.
For those of us who follow the auto industry closely, Whitacre’s claims were immediately met with skepticism. Since working its way through federally orchestrated bankruptcy last summer, GM has yet to turn a profit. Having lost billions each month leading up to bankruptcy and its subsequent restructuring, it would seem that the $8.4 billion GM repaid had to come from some place other than profits.
As it turns out those funds comprise excess bail out money given to GM under the Troubled Assets Relief Program or TARP. Even GM understands this, mentioning in a press release, “The U.S., Canadian, and Ontario governments, as part of the launch of the new GM, provided loans of $8.4 billion and took equity stakes in the new company.” Underlining, mine.
In some ways what Whitacre has said is correct: money borrowed has been returned while the rest of what GM got from taxpayers has been converted into equity stakes in the company. Taxpayers will only see that money if the “new” GM issues stock in itself and the respective governments sell off their shares in order to recoup their investments.
One of the most vocal challengers to GM’s assertion that taxpayer funds have been repaid is coming from Iowa Senator Charles Grassley. Grassley told Fox News, “The reality is that GM got additional TARP billions from a Treasury escrow account filled with taxpayer dollars. Taxpayers have not been paid back “in full” and are still on the hook for the TARP stock investment in GM. Whether taxpayer funds are ultimately recovered depends upon the administration’s ability to sell GM stock at a profit some day. Of course, we all hope it works out that way, and it might. But, the American people deserve more than puffed-up press releases and misleading commercials claiming that GM paid its loans back to the government with money it earned.”
Grassley complained to Treasury Secretary Timothy Geithner about GM’s assertion, stating in a letter that the automaker was making misleading claims. Those claims might possibly put the automaker at odds with the Federal Trade Commission who is tasked with upholding truth-in-advertising laws, including those which mislead consumers. Grassley wants Geithner to explain why GM was allowed to repay bail out money with bail out money, and how much of its remaining escrow the automaker would be allowed to keep.
Detroit Free Press blogger Mike Thompson enthused on his blog last week, “It’s way too early for those who favored government aid for GM to break out in loud chants of “I told you so,” but if the good news out of GM continues, they might want to start thinking about warming up their vocal cords.” Thompson noted that thousands of jobs have been preserved because of the federal bail out.
Forbes columnist Shikha Dalmia had a few choice words for the “fairytale version about Government Motors’ grand comeback,” noting that there is a very real possibility that taxpayers may never be made whole.
In any case, the next time you watch a GM ad featuring Ed Whitacre, listen carefully to his claims and then be prepared to verify them independently.
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