Today, there is bound to be considerable excitement. General Motors intends to start paying its government loans back ahead of schedule. In fact, they plan to give Uncle Sam a check for a billion dollars on New Year’s Eve.
Now, as your mama might have said, never count your money before it is in your wallet. But it looks pretty certain that GM will make that first payment. If they keep it up, tossing a billion back to us every quarter, they will end up free and clear of their obligations to the taxpayers less than two years from now.
That’s far earlier than the payoff date originally agreed to, July 2015. Additionally, GM sales were up last month for the first time in a long time. This is all legitimately good news.
For old timers, it is bound to evoke good memories of the nation’s first auto bailout, Chrysler in 1979. That time, the automaker completely repaid its loans ahead of schedule, and returned to profitability faster than anyone imagined.
However, the situation is far different today. For one thing, the government never really lent Chrysler a dime, way back when.
What Washington did was promise to guarantee loans for the automakers, so that Chrysler could get credit. The total amount of those loan guarantees was less than two billion dollars.
Even with inflation, that‘s far less than the $50 billion in direct aid the government has given General Motors. That‘s not the only difference. Here’s another: GM is never going to pay back the vast majority of that money. They don‘t have to.
For one thing, you may have forgotten, but we bought them. You and me and all of us now technically own more than 60 percent of General Motors. The hope is that someday the government can sell the stock in the private sector and get our money back.
We may have to wait a long time. Steven Rattner, the former White House auto czar, thinks the taxpayers already have lost something like $25 billion dollars on GM.
And General Motors only has to repay $6.7 billion of the money we gave them. Now, when they cut us a check for that first billion next month, where do you suppose it’s going to come from?
Would you guess from new profits they now are making? Not at all. General Motors is going to use some taxpayer loan money they hadn’t spent yet. There are no profits. GM is still losing money, especially in the key North American market. Now it is true that some signs have gotten better. Economists are a bit more hopeful.
Still, while the symbolism of paying us off earlier is nice, I’m not sure they should. That’s because GM has almost $13 billion in underfunded pension obligations. Earlier, GM’s chief financial officer suggested the company pay some of those off first.
But appearing to pay the taxpayers back may be better public relations. We all need to hope GM’s recovery continues. We’ve got a lot of cash tied up in this baby. If you think I’ve been too pessimistic, remember that it is always better to keep your eyes on the road.
And whenever you are offered a deal, pause to kick the tires.
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