April 21, 2010

Horse Manure Column of the Day

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 8:40 am

From GM’s Ed Whitacre in the Wall Street Journal (link may require subscription):

The GM Bailout: Paid Back in Full
The investment of U.S. and Canadian tax dollars worked.

No Ed. The government ripped off disfavored creditors and dumped something like $45 billion into new GM stock. It then “cleverly” lent your company far, far more than it needed to get going after walking away from tens of billions of dollars in pre-bankruptcy debt.

Now we’re supposed to be impressed that your company paid back a bunch of money that has been parked doing almost nothing since it emerged from bankruptcy.

Big freakin’ deal.

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UPDATE: No true accounting for the cost of the GM government bailout is complete without taking GMAC into account. The government in essence admits to that fact, as reported by the Associated Press on March 11:

The Treasury Department sank billions into auto finance giant GMAC Inc. without an exit strategy or proof the company was viable – a decision that could cost taxpayers $6.3 billion, a new watchdog report says.

… GMAC was treated more like banks that received bailouts without having to explain what they were doing with the money, the report says.

The report was released Thursday by the Congressional Oversight Panel overseeing the $700 billion financial bailout that Congress passed in October 2008.

“Treasury missed many opportunities to improve accountability and protect taxpayer money,” panel chair Elizabeth Warren said in a conference call with reporters. She said Treasury didn’t make GMAC show how it would return the taxpayer money, or how the investment would increase credit to consumers.

“These decisions mean that Treasury is now struggling to deal with a GMAC that is not financially rehabilitated, Treasury has no exit strategy and taxpayers are not fully protected,” Warren said.

The Treasury Department responded by reiterating that backing GMAC was necessary to preserve dealer financing for GM. It disputed the report’s core finding, that alternative approaches might have saved taxpayer money and provided better transparency.

Uh, the reference $6.3 billion is more than the $5.8 billion Whitacre reports having repaid. So taxpayer losses were shifted from one GM entity to another.

Again, big freakin’ deal.

UPDATE 2: Best comment at the Journal (bolds are mine) —

GM – in some form – was rescued by a bailout. So what? Missing in this analysis is any accounting for the time value of money. These funds were forcibly diverted for a period of more than a year from other potential investments. There is no proof whatsoever that this was the best use of those funds. Following this logic, we should just turn over all of our money to the federal government and let them pick the recipient of the politicians’ largesse.

Thanks, but I’ll take freedom. Let the failures fail. … stronger ventures will arise from the ashes.

UPDATE 3: This news may explain Whitacre’s timing (link may require subscription) –

Chrysler Reports $4 Billion Loss Since Exiting Bankruptcy

Chrysler Group LLC lost nearly $4 billion since exiting bankruptcy last year, but the company reported a first-quarter operating profit and increased its cash reserves, bolstering Chief Executive Sergio Marchionne’s claim that the auto maker will break even by the end of the year.

The auto maker lost $197 million during the first quarter and $3.78 billion for the period covering June 10 through Dec. 31 after the company had exited bankruptcy. Last year’s loss included a $2.1 billion charge for the company’s payment into the United Auto Workers health care trust fund.

… Despite the 2009 financial report, Mr. Marchionne said Chrysler has continued to strengthen its cash position and will achieve of its strategic targets outlined at the company’s headquarter in Auburn Hills, Mich. in November. Those targets included Chrysler breaking even on an operational basis and selling 1.1 million vehicles in the U.S.

… Revenue for 2010 is expected to range between $40 billion and $45 billion with earnings of $2.5 billion to $2.7 billion before interest, taxes, depreciation and amortization.

… Mr. Marchionne was no under obligation to release the financial results. However, he vowed to provide updates since he intends to return Chrysler to a publicly traded company in the future.

The invocation of “operating profit” is the kind of stuff Internet companies used to do during the dot-com bubble.

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4 Comments

  1. Here’s a good perspective on GM’s payoff of their loan.

    http://www.forbes.com/2010/04/21/general-motors-debt-business-autos-gm.html?partner=yahootix

    GM Still Owes Us
    Jerry Flint, 04.21.10, 04:43 PM EDT
    The government loan the automaker paid off is just a fraction of the support it’s received.

    …GM can say they paid us back because of the $50 billion in total support, only $7 billion was counted as a loan and the rest was traded for equity in the company that emerged from bankruptcy. But that is really an accounting trick so that GM doesn’t have to pay interest on that money.

    What seems to have happened is that of the $50 billion given to GM, the company burned through some, and then paid back $7 billion from what they didn’t spend.

    We are supposed to get the remainder when GM sells stock. …

    Comment by Cornfed — April 21, 2010 @ 6:57 pm

  2. Whitacre is in a television ad telling us GM paid off its loans. I did not voluntarily bailout the auto company and the unions and I sure won’t purchase any of its product to enable the farce of Whitacre/Obama saving GM.

    Is there any mention anywhere what Timmy Geithner did with the cash from GM? Probably flipped millions right back by purchasing hundreds of GM cars for his staff to audit tax payers.

    Comment by Michael — April 22, 2010 @ 8:16 am

  3. Senator Grassley and the TARP IG are all over this.

    “”It appears to be nothing more than an elaborate TARP money shuffle,” Grassley, the ranking Republican on the Senate Finance Committee, said in a letter Thursday to Treasury Secretary Timothy Geithner. …

    “Grassley said in his letter that a Securities and Exchange Commission form filed by GM showed that $6.7 billion of the tens of billions the company received was sitting in an escrow account and available to be used for repayment. He called on Geithner to provide more information about why the company was allowed to use bailout money to repay bailout money, and how much of the remaining escrow money GM would be allowed to keep. “…

    “The bottom line seems to be that the TARP loans were ‘repaid’ with other TARP funds in a Treasury escrow account. The TARP loans were not repaid from money GM is earning selling cars, as GM and the administration have claimed in their speeches, press releases and television commercials,” he wrote. ”

    http://www.foxnews.com/politics/2010/04/22/grassley-slams-gm-administration-loans-repaid-bailout-money/

    Comment by Cornfed — April 23, 2010 @ 5:57 am

  4. [...] and that their gullible relaying of Whitacre’s spin — including the Wall Street letting the deceptive headline appear — has been irresponsible. You can rest assured that I won’t be waiting by my e-mail box [...]

    Pingback by BizzyBlog — April 24, 2010 @ 6:25 pm

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