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Led by new CEO Fritz Henderson and new Chairman Ed Whitacre, GM looks to repay the government's loans early -- however the government is still expected to lose $25B USD on its investment, when GM sees its new public offering.  (Source: AFP)

Vehicles like the 2011 Chevy Volt, help GM's chances of staying viable, though, ultimately making the taxpayer sacrafice worth it, according to some.  (Source: Automotive)
GM's repayment plan will kick off in December

Last week it headlines were made when GM's Chairman let slip that the company might soon start repaying taxpayer loans.  At the time, many, including more than a few DailyTech readers, expressed skepticism over whether the company would even try such an accomplishment.  Now, however, the company has announced plans to indeed kick off the repayment -- and to repay the government ahead of schedule.

Firing on all cylinders after selling or killing off its stale assets before its emergence from bankruptcy, a revitalized GM will look to pay off the extra $6.7B USD that the government loaned it during the bankruptcy process.  According to both The Detroit News and The Washington Post, GM's board of directors and the U.S. Treasury have agreed on a repayment plan that would involve GM paying $1B USD per quarter, starting on December 31.

The plan will not include the direct repayment of the approximately $43B USD that the U.S. government gave GM, in exchange for a controlling 60.8 percent stake, or the Canadian government's 11.7 percent stake (for $10.5B USD).  It will, however, ready GM for a public offering in mid-2010 to "repay" the government, and remove this stake.  By then GM hopes to have offload approximately half of its debt.

GM will also pay the Canadian government $200M USD per quarter, to cover the $1.4B USD the Canadians loaned it.  The formula for interest on both the U.S. and Canadian loans is reportedly complicated, with the simplest factor being the minimum rate set at 7 percent.  GM is estimated to pay about $1B USD in interest to the US government.

GM Chairman Edward Whitacre Jr. stated earlier that there was a "sense of urgency at GM to repay the money we owe as soon as possible." He added, "We can pay that back, and I can't tell you when, but it wouldn't be very long and it is sooner than you think."

Between the stake it purchased and the loans, the government has sunk $49.9B USD into GM, with $13.4B USD donated by the Bush administration and the rest coming from the Obama administration.  GM officially does not have to repay the government's loans until July 2015, however, the company feels compelled to do so early to try to convince more customers to buy its cars.

One critical disappointment, according to the Government Accountability Office -- the Congressional Oversight Panel which is overseeing the $700B USD bank and automotive bailout -- is that when GM is publicly offered again, the government (and taxpayers) will likely lose a massive amount of money on their investment.  Current estimates are that taxpayers will lose $25B USD on the investment.

GM's outlook is mixed.  On the one hand it exited from bankruptcy early at 40 days (versus the expected 60-90), benefited from Cash-for-Clunkers, and is eagerly awaiting the release of the highly anticipated 2011 Chevy Volt electric vehicle. 

On the other hand, the company only has $13.4B USD in government funding left.  Ironically GM will likely use much of this funding (which the government provided in exchange for its stake) to repay the loans, in preparation for a public offering to remove the government stake, a curious circular arrangement, that will surely cost taxpayers greatly.  Furthermore, GM faces a $12B USD pension shortfall and the Herculean chore of reversing the trend of $88B USD in losses since 2004.



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one little detail missing
By kattanna on 11/16/2009 10:04:26 AM , Rating: 5
http://online.wsj.com/article/SB200014240527487044...

quote:
But in a move that could be controversial and risky, the car maker plans to use other money it received from the government to pay back the borrowing.


all its doing is buying good press. which it desperately needs. but still, using money we gave them to "pay" us back? LOL




RE: one little detail missing
By JasonMick (blog) on 11/16/2009 10:09:53 AM , Rating: 3
I didn't miss that idiosyncracy:

quote:
On the other hand, the company only has $13.4B USD in government funding left. Ironically GM will likely use much of this funding (which the government provided in exchange for its stake) to repay the loans, in preparation for a public offering to remove the government stake, a curious circular arrangement, that will surely cost taxpayers greatly.


Curious indeed...and unfortunate for the taxpayers who will be out approximately $25B USD. Is it worth it to keep GM alive? I suppose that's up for debate. But its a rather unsavory situation to say the least, the deeper you dig.


RE: one little detail missing
By djc208 on 11/16/2009 11:31:53 AM , Rating: 3
The 25B was part of the purchase of the 60% stake in GM. Using the money to pay the loan back is a push to make the company more desireable.

The key is that they are trying to get to a point where they can go public again. Once they do the government can sell off it's 60% stake in the company to recoup that 25B (and possibly more if they're smart about it). The key is to make the company desireable to help push up the stock price.

The stock options could be worth far more than the loan repayment if GM plays their cards right. Look at how many CEOs were willing to work for $1 salary because they make far more from their stock options (as long as the price goes up).

Bill Gates isn't one of the richest men in the world because he has all that money in the bank, it's because he could if he sold all his stock in Microsoft.


RE: one little detail missing
By callmeroy on 11/16/2009 12:25:18 PM , Rating: 2
DJC208 is the only one (at the time of me reading the threads) who really hit the nail on the head about this in these posts so far.

He/she did a better explaination of it than I was going to so it saves me a post.

Laughing and saying "lol" they are using borrowed money to pay back borrowed money - is technically correct, but its just part of the system and strategy to try and right a long past sinking ship.

BTW -- this kind of stuff happens all the time in businesses folks...its just big news because usually it isn't with tax payer money.


RE: one little detail missing
By djc208 on 11/16/2009 1:47:55 PM , Rating: 2
Sorry, it was apparently $52B in Government money to "purchase" our share of GM. Only a portion of which was available for use by GM, the rest was to pay off GM debts.


RE: one little detail missing
By civilgeek on 11/17/2009 12:08:17 PM , Rating: 1
Ya... Like it worked out so well for the original share holders. Those are the folks I feel sorry for.


RE: one little detail missing
By The0ne on 11/16/2009 11:57:02 AM , Rating: 3
This is just PR. If one reviews their plans from several months ago their measly fund will be use to drive marketing. They've benefited from the CfC but not that great. Sales is still down, although this month has seen a small rise. Their goal is to market this POS Volt as much as they can for the 2010/20112010 release.

What other plans do they have to generate money to be able to pay back the loans? NOTHING.


RE: one little detail missing
By Spookster on 11/16/2009 12:51:45 PM , Rating: 2
quote:
Their goal is to market this POS Volt as much as they can for the 2010/20112010 release.


They can market it until they turn blue in the face but it still won't make it possible for most people to afford to buy a 40k car. They seem to be hinging their entire future as a company on a car that most people won't be able to buy. I have yet to grasp what they are thinking.


RE: one little detail missing
By Oregonian2 on 11/16/2009 2:45:43 PM , Rating: 2
Their sales went up I think last month, I saw that their market share was up to 20% or a hair higher (above the 19.5% quoted above). To tell the truth, their current marketing campaign, for chevy in particular, has looked a lot better/stronger than any I recall ever seeing, especially in combination with the current money-back return policy and EPA comparisons.

I'm not sure why everybody here seems to focus (tm Ford) on the Volt so much as the savior of GM. I don't think GM has said or thinks that other than in the very long term (and they need to go through the volt to get to the destination products whenever they happen).

Payback in the next few years will be from current product and their followons in combination with efficiencies in operation (taken in all aspects) including reorganizing Opel, etc.

P.S. - PR is a VERY VERY important aspect of success for consumer products, especially for high ticket ones like autos. Saying something is "just PR" tries to infer that PR isn't important -- but in truth it's vital to the success of most all consumer products. Companies don't pay half a million dollars (or whatever it is now) for thirty seconds of superbowl TV time just for the fun of it. It's "just PR".


RE: one little detail missing
By Spuke on 11/16/2009 3:38:46 PM , Rating: 2
quote:
I'm not sure why everybody here seems to focus (tm Ford) on the Volt so much as the savior of GM.
I don't know where this saving GM crap comes from either. GM never said it would save them and at the numbers this car is supposed to produce, it wouldn't come close to saving the company. The Volt is just rolling R&D. The refined, cheaper versions come later.


RE: one little detail missing
By vkg1 on 11/17/2009 12:19:47 AM , Rating: 1
Exactly. When government interferes with markets by bailing out companies in this manner it creates zombies that just cost everyone more and more money until they inevitably eventually collapse anyway. I love Obama on a lot of things but this government taking over companies crap has GOT to go.


RE: one little detail missing
By Aquila76 on 11/16/2009 10:18:42 AM , Rating: 2
Don't forget the interest being charged. If they're using $13B of the loan as payback, and an estimated 7% of that is interest, then we taxpayers just lost nearly $1B on that transaction alone.


RE: one little detail missing
By 67STANG on 11/16/2009 10:50:33 AM , Rating: 5
This reminds me of people that use their credit cards to pay their bills-- usually that doesn't mean they are on their way to recovery...

Every time I see one of those horrid Howie Long commercials, I cringe knowing I had to pay for part of it. If Chevy wants to make commercials about their sketchy methods of claiming high MPG, at least do it with chicks in bikinis... I want my money's worth.


RE: one little detail missing
By Tom mc3s on 11/17/2009 5:53:51 AM , Rating: 2
I'm not sure if your example applies here. In your example an initial loan was made and then a second loan was made to pay off the first loan, essentially just transferring the debt. As I understand it, what's happening here is that the remaining funds from one loan are going to be used to pay back the debt. So in other words they borrowed more money than they thought was needed.


RE: one little detail missing
By Reclaimer77 on 11/16/2009 5:42:31 PM , Rating: 2
It's the new trend. Obama recently announced that he will use most of the "stimulus" money that hasn't been spend to pay back the national debt.

Let that soak in for a minute folks. The stimulus is borrowed money, the national debt is from borrowing money too. So how does paying back a loan WITH borrowed money make ANY economic sense !?


RE: one little detail missing
By Tom mc3s on 11/17/2009 4:57:26 AM , Rating: 2
I could very well be wrong and you very well could be right but I don't believe it works out like that exactly as you've stated it.

The recent fiscal year for the US recently ended so I assume that all of the stimulus money was already borrowed (as in not promised as a future loan that could possibly be waived if not needed). If the loan was for a greater amount then was needed or if it was the correct amount but only needed to be there as a security then paying back that loan with money left over from the loan is a good place to start. It beats needlessly spending all of the loaned money and then starting to pay it back with new money.

So for an unbelievably oversimplified example: You borrow $10 from a bank. You have $3 left over from the loan that is no longer needed. While you are still surely going to pay finance charges on the full $10, it is economically sensible to pay back that $10 starting with the left over money. If the money is not needed for other expenses, the loan now becomes the primary concern of the debtor.

I think the criticism of GM (and possibly Obama and the rest of the current government that was involved in this) should be perhaps more focused on making these loans too large to begin with and not necessarily using "left over" loan money to begin repaying the debt.

Again, I concede that I could very well be wrong but this is how it makes sense to me. I just don't see any sensible way to use the rest of the loaned money if it isn't indeed needed for the purposes the loan was taken out for. Now if they could simply waive the rest of the money as "not needed" to the US government and thus the US government could in turn waive their debtors I would agree that would be the best choice. However, if the money has already been transfered I don't see how that would be possible.


Just waiting for it all to fall down
By Makaveli on 11/16/2009 11:07:01 AM , Rating: 2
How long will the US system sustain all this. Collapse is road we all on, driven there by idiotic governments and wasteful spending. lol when the whole North American market falls who is going to bail us out.

Too big to fail my ass.




By cscpianoman on 11/16/2009 12:47:45 PM , Rating: 2
You are never too big to fail, and given enough time with our current trend our "too big to fail" gov't will do the same. All this is doing is giving the smarter people a chance to run and run fast. The not so smart people need not apply.


By bigdawg1988 on 11/16/2009 2:33:36 PM , Rating: 2
Yeah, but who's going to collect the debt? What do you think we built up all that military hardware for? DEBT PROTECTION!!

Seriously though, it was our PERSONAL overspending, greed, and reliance on credit that got us into this in the first place. The government just ignored it, because we wanted them to. Home prices rising like rockets and more credit to go around. Something had to give. Unfortunately, nobody seems to want to do anything as long as the bubble's rising. And it's too late afterward. All of you guys complaining about government spending and bailouts need to look at Japan and see what happened there. At least our government is trying to do something early instead of waiting of something to happen miraculously.


Wrong bad guy
By djc208 on 11/16/2009 9:52:17 AM , Rating: 3
Sure, I as a tax payer want my money back, but we seem to have an unusual focus on this car company debt. The media needs to continue to track this money and not let it "dissapear". However where are the stories about loan repayments for the billions spent on banking and financial institutions? Do we even know where all that money went?

Good for GM, it's long past time they got their financial house back in order. My biggest concern is that GM moves too fast to repay these loans. Car development is expensive, they can't afford to skimp on the next generation of cars in order to repay a loan quicker. The Volt may be much anticipated but it will be a loss leader for at least two generations, which means all it's other vehicles will need to carry it unitl then.




RE: Wrong bad guy
By Uncle on 11/16/2009 1:10:54 PM , Rating: 1
The incentive to get out from under the government is the bonuses that the top minions are not receiving and having a government accountant looking through your books. The minions do have a life style to project, and bragging rights to uphold.


By Tom mc3s on 11/17/2009 5:15:58 AM , Rating: 2
While I consider myself fairly politically neutral and I can't say whether or not I really approve or disapprove of any of the bailouts, this business of the partial stake ownership seems to be a large mistake. The only feasible reason I see why partial ownership was favored over just increasing the bailout to GM was so the government would have legal right to make changes to how GM was run without having to pass laws that could affect much more than just GM.

Other than that, though, I can't see how taking a loss on buying stock in a company was economically the better option over a larger stimulus loan that at face value would have netted a gain in the long run (I realize that the stimulus money was a loan already to the US government so potentially what interest they will need to pay on that and other factors could wipe out any monetary gain or even put it in the red).

Also, does this $25B in lost money necessarily even have to happen? To my understanding that's assuming we sell the stock as soon as it becomes sellable thus taking a hit on what price the stock was purchased at compared to the worth of the stock now. I realize no matter when you unload that amount of stock in any company quickly you will drive stock prices down drastically but I have to think if done correctly over the long term (HURR DURR GOVERNMENT) it doesn't have to result in a large loss.




By heulenwolf on 11/17/2009 10:14:13 AM , Rating: 2
The only way this move by GM makes sense - paying back the loans earlier than required at $1B/quarter - is if their analysis shows that loan payback is the best use of available funds. In other words, consumer indignation over the bailout GM is running on is hurting sales so badly that there's nothing they could do in terms of internal investment with those $1B/quarter, or some portion thereof, that would help sales recover any better than paying that money back, quickly. They could, for example, throw a large portion of that money toward development of the Volt to bring the cost down, throw a larger portion toward marketing, invest in more efficient assembly lines or an even larger fund for longer/better warranties and pay the loan off more slowly. Instead of any other investments that could improve the workings of the business, their best bet is to pay the $ back even more promptly than they promised. The message that action sends is: GM sees that people don't like buying cars from a tax-payer supported company. They must believe that sales of exactly the same products will improve due to improved consumer perception of the company if they get that monkey off their back.

Partly, I think its sad that GM couldn't think of ways to use the money to make itself a better, more streamlined, more competitive company (the intent of the loans to begin with). I wonder if, despite all the reshuffling due to bankruptcy, the leadership just can't see the internal problems they're facing that some extra capital could help solve. If GM pays off the loan but goes out of business in a few years, anyway, is America any better off?




...
By icanhascpu on 11/16/2009 6:12:05 PM , Rating: 1
Fuck GM.
Fuck Comcast.

Real capitalism isn't like this.




"Nowadays, security guys break the Mac every single day. Every single day, they come out with a total exploit, your machine can be taken over totally. I dare anybody to do that once a month on the Windows machine." -- Bill Gates














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