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Economy

Don't believe the hype

Ed Whitacre, chairman of General Motors, is patting himself on the back for paying back $5.8 billion in loans extended by the U.S. and Canadian governments.  Meanwhile, the Obama administration is claiming that this vindicates the decision to throw a "lifeline" to the struggling automobile industry.

But, as Shikha Dalmia points out in Forbes, things are not as they seem.  The government actually pumped in nearly $50 billion to help finance GM's bankruptcy, although for political reasons the administration extended only $6.7 billion of this in the form of an actual loan.  The rest involved purchase of GM stock, so that the government owns a 60 percent share in the corporation.  This has not been repaid, and unlikely never will. 

However, even Whitacre's claim to have paid back the direct loan is misleading.  The funds did not come from GM's profits.  Those are nonexistent; indeed, the corporation has yet to break even.  The $5.8 billion came out of an escrow account containing $13.4 billion of--wait for it--government bailout money. 

Why is GM playing this shell game?  Because what the corporation has applied for a $10 billion low-interest (5 percent, as opposed to the 7 percent interest that was being charged on the $6.7 billion) loan from the Department of Energy.  What better way to show its worthiness of another bailout than by ostentatiously "paying back" what had previously been owned?

In other words, General Motors will remain Government Motors for the foreseeable future.  As the General Accountability Office concluded last December, "The Treasury is unlikely to recover the entirety of its investment in Chrysler or GM, given that the companies' values would have to grow substantially more than they have in the past."

Categories > Economy

Discussions - 1 Comment

Yea, I just heard a radio commercial where Whitacre is crowing about the "repayment." I do hope that the fundamental dishonesty of this becomes widely known. Thanks, John.

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