You are probably hearing radio ads or seeing television ads from GM trumpeting their complete payback of their bailout loan plus interest five years early. On the surface, this would seem to be exciting news.
However, according to Forbes magazine, the ads are very misleading and border on downright lies.
Here’s the salient portions:
Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn’t, the company, which couldn’t raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.)
[..]
Because a loan of such a huge amount would have been politically controversial, the Obama administration handed GM only $6.7 billion as a pure loan. (It asked for only a 7% interest rate–a very sweet deal considering that GM bonds at that time were trading below junk level.) The vast bulk of the bailout money was transferred to GM through the purchase of 60.8% equity stake in the company–arguably an even worse deal for taxpayers than the loan, given that the equity position requires them to bear the risk of the investment without any guaranteed return. (The Canadian government likewise gave GM $1.4 billion as a pure loan, and another $8.1 billion for an 11.7% equity stake. The U.S. and Canadian government together own 72.5% of the company.)
But when Mr. Whitacre says GM has paid back the bailout money in full, he means not the entire $49.5 billion–the loan and the equity. In fact, he avoids all mention of that figure in his column. He means only the $6.7 billion loan amount.
[..]
So how is it paying it?
As it turns out, the Obama administration put $13.4 billion of the aid money as “working capital” in an escrow account when the company was in bankruptcy. The company is using this escrow money–government money–to pay back the government loan. [Emphasis added]
The long term goal of GM it seems is to pay off the $6.7 billion at 7% interest so they can get a $10 Billion loan (which they have already applied for) from the Department of Energy to retool their plants to meet the new stricter CAFE standards. The advertising blitz touting their payback of the bailout loan is meant to win back the hearts and minds of the car buying public, many of whom are now buying either Honda or Ford. Ford by the way is announcing record profits for the first quarter and are solidly in first place when it comes to total sales.
Shikha Dalmia who is a senior analyst at Reason Foundation and a biweekly Forbes columnist has done our country a great service by exposing this lie. Please take the time to read the full article at Forbes entitled “Still Government Motors“.
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