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
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