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Don’t buy GM’s payback claim; Rich Mannion; Beaver County Times; April 29, 2010.
Below is a detailed critique of the subject letter.
“Most people have probably seen the latest GM commercial where the CEO walks through one of its factories touting that it paid its government loan in full, early and with interest.
“Only one problem. GM paid back that $8.1 billion [$6.7 billion in principal plus interest] with other bailout money, not its own earnings, according the TARP Inspector General Neil Barofsky.
“Nothing like a little spin to make Government Motors, sorry, I mean General Motors look good, huh? It's like stealing from Paul to pay Paul.
“That money is really only a part of the tens of billions it actually received from the government, still owing $45.3 billion.
“On top of that, Congress has been told that the government is expected to lose a little more than $30 billion of the total $82 billion bailout of the auto industry. This is simply amazing.
“Our government owns approximately 61 percent of GM, and it looks to me as though it is going to run GM as it does the government by misleading the public and using sleight of hand.
“What happened to truth in advertising?”
[RWC] This letter is pretty much correct. The purpose of the critique is to provide more detail.
There are four buckets of money involved on the U.S. side (Canada also gave GM money.): a $6.7 billion federal government loan to GM, $13.4 billion in fed aid for working capital, and $29.4 billion the feds gave GM in return for stock, for a total of $49.5 billion. The money to “pay back” the loan came from the working capital bucket, not from GM earnings. As a reminder, GM is still losing money by the billions.
If the above was all you knew, you’d likely figure the “payback” was simply a publicity stunt. While it was a publicity stunt, there is more to it. Above I mentioned four buckets of money. The fourth bucket of money is a loan program to help automakers retool their plants to meet the new CAFE standards. GM has applied for a $10 billion loan from this program, at an interest rate two percentage points below the “repaid” loan. It’s thought neither GM nor the feds wanted the embarrassment of another loan on top of all the previous handouts and this prompted the money shuffle. The net effect of this shuffle is GM traded its $6.7 billion loan for a $10 billion loan (if approved) at a lower interest rate.
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