Did General Motors Really Repay All of Government Loan?
You’ve seen the commercials. The CEO of General Motors struts around mentioning that the company has paid back the entire loan from the government plus interest. Is it true? Sort of.
The Great Recession really did a number on individuals and businesses alike. In fact, it still is. One industry that was really nailed down was the auto manufacturers. The Big Three were very inefficient, particularly GM and Chrysler. The lost billions and the economic meltdown finally put both of them where they belonged – bankruptcy.
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The companies were such bad bets for the long term that they ran into a unique situation. They could not get financing that they needed to stay afloat while the bankruptcy proceeded and to launch after leaving it. In a politically questionable move, President Obama stepped in with government financing. It saved both companies.
In the case of General Motors, the total financing ended up being roughly 50 billion dollars. Yes, 5…0! Ah, your tax dollars at work. So, did GM pay back the 50 billion plus interest to the United States Treasury as is claimed in the commercials by CEO Ed Whitacre, Jr.? In a word – no. Instead, GM paid back $8.2 billion plus interest. That’s a nice chunk of change given the fact the company has only been out of bankruptcy a relatively short period, but it is hardly the full amount owed.
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So, is this a blatant lie? Oddly, the answer is also no to that question. How can this be? Well, it has to do with how the remaining $42 billion in bailout was handled. It was turned into an equity position when the company emerged from bankruptcy. To put it another way, the government is now a shareholder in GM. It owns roughly 9 percent of the outstanding shares in the company.
Ultimately, the federal government has bet your and my taxpayer money on the profitability of General Motors in the future. If the price goes up, the investment will be very valuable. If it goes down or General Motors has more problems, we’ll end up eating most of the money given to GM.