Government Motors Has a Truth Problem

Have you seen the Wall Street Journal op-ed by General Motors’ CEO Ed Whitacre? Have you seen the commercials GM is running, bragging about having repaid their taxpayer loan ‘in full?’ Whitacre acknowledges that there’s ‘still more to do.’ At the top of the list should be ending their attempts to fool American taxpayers, to whom GM still owes tens of billions of dollars:

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.) So when Mr. Whitacre publishes a column with the headline, “The GM Bailout: Paid Back in Full,” most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion.

That, however, is far from the case. 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.)

So while Government Motors’ CEO claims to have paid back your money ‘in full,’ he can’t be bothered to address an inconvenient truth: that his company still owes the taxpayers nearly $50 billion. Furthermore, it’s worth asking the Obama administration why they are allowing a company in which they own a controlling share to play fast and loose with the facts. As the majority shareholder, shouldn’t the White House have an interest in making sure that their company adheres to simple standards of truth in advertising? That said, the overall picture gets worse:

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…

Sean McAlinden, chief economist at the Ann Arbor-based Center for Automotive Research, points out that the company has applied to the Department of Energy for $10 billion in low (5%) interest loan to retool its plants to meet the government’s tougher new CAFÉ (Corporate Average Fuel Economy) standards. However, giving GM more taxpayer money on top of the existing bailout would have been a political disaster for the Obama administration and a PR debacle for the company. Paying back the small bailout loan makes the new–and bigger–DOE loan much more feasible.

In short, GM is using government money to pay back government money to get more government money. And at a 2% lower interest rate at that. This is a nifty scheme to refinance GM’s government debt–not pay it back!

GM boasts that, because it is doing so well, it is paying the $6.7 billion five years ahead of schedule since it was not due until 2015. So will there be an accelerated payback of the rest of the $49.6 billion investment? No. That goal has been pushed back, as it turns out.

Read the whole thing. The picture is plain: GM and its unions benefited from a sweetheart taxpayer lifeline. And despite having access to more than $60 billion in taxpayer money, there’s no sign that they’re righted the ship, or have a plan to build a viable private-sector company that won’t continue to depend on taxpayer money to survive. And despite this shameful record of failure, they’re trying to tell you they’ve turned the corner, and kept faith with the American taxpayer.

Is GM’s largest shareholder going to correct the record?