GM Loans repaid early - or are they?
GM have repaid their Government loans five years early – and made a big deal of the fact. But is the repayment for real, or smoke and mirrors?
We can’t deny that GM are making a pretty good job of rising Phoenix-like from the ashes of their effective bankruptcy. A new focus on cars that are relevant for our times instead of a fixation with dated products and dated management has certainly helped. But so has huge bailout funding from the US Government.
Not only has GM received $50 billion of taxpayer funds to prevent oblivion, but it has hiked all its toxic debt in to an ‘Old GM’ company, preventing those debts from causing problems for the new, state-funded GM. But of that $50 billion some $43 billion is being turned in to stock, meaning the US taxpayer owns a big stake (some say it should be all) in GM.
If you do some simple maths you will see a $7 billion gap between the stakeholder price and the bail-out funds. That $7 billion was termed a loan, and has just been repaid by GM, apparently signalling a mircaulous return to success and profitability for one of Americas biggest corporations. Good news. But is it?
Perhaps not. It would seem that $17 billion of the bailout money was put in an escrow account for GM. It seems that GM have taken money from that account to repay the loan. Which technically means they have repaid the loan from the Government, but anyone living in the real world wouldn’t see it that way.
One US Senator has gone as far as to say that GM’s advert featuring CEO Ed Whiteacre bragging about the repaid loan comes “…close to committing fraud and that GM might have colluded with the U.S. Treasury to deceive the American public.” Strong words, but he certainly has a point. Sen. Chuck Grassley grudgingly admits that GM’s assertions are ‘Technically correct’, but that hardly saves them from being at best disingenuous and at worst deceitful.
Still, it obviously pays to have the US Government as your bankers. I wonder if they’d consider opening a branch here? We could definitely live with that sort of funding.
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