Fun with Numbers: GM’s Phony ‘Payback’ of Taxpayer Loans
Last week, Government/General Motors Chairman Ed Whitacre went to the pages of the Wall Street Journal to crow about how well the company is supposedly doing. In “The GM Bailout: Paid in Full,” he told readers the following:
We’re paying back — in full, with interest, years ahead of schedule — loans made to help fund the new GM. Our ability to pay back these loans less than a year after emerging from bankruptcy is a sign that our plan for building a new GM is working.
Whitacre then took to the airwaves to announce the payoff as a done deal, saying we “have repaid” the loans.
There are two “little” problems with Whitacre’s presentation. First, the “Bailout Paid in Full” headline in the Journal doesn’t pass the truth test no matter how far you try to stretch it. As Forbes magazine’s Jerry Flint reminded readers:
That still leaves $43 billion. 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.
That’s a great point. The government poured tens of billions into GM in return for a 61% ownership stake. Unless and until GM goes public and the government cashes out its shares for at least the $43 billion cited plus at least 5% for each year of delay to account for the time value of money, taxpayers will be getting the short end of the stick.
What’s more, the funds for GM’s loan “repayment” did not come from cash generated by operations. In fact, the company’s latest available financial information indicates that from September 30 (Page 2 at link) to December 31 (Page 123 at link) it burned through $2.4 billion in cash and equivalents, while its working capital (current assets minus current liabilities) fell by $2.75 billion. TARP Inspector General Neil Barofsky has asserted, as paraphrased by Fox News, that GM “only repaid the bailout money by dipping into a separate pot of bailout money.” Good luck finding that critical piece of information anywhere else in the establishment press.
The situation isn’t any better at GM’s fellow bailout recipient Chrysler — nor is the press coverage.
Chrysler lost $3.8 billion during the 205 days after it emerged from bankruptcy last year. It lost another $197 million in the first quarter of 2010. Here was the Associated Press’s headline about those contemporaneous announcements: “Chrysler Posts $197M Loss But Cash Balance Grows.”
One analyst is justifiably unimpressed: “Positive cash flow is being driven by dealer restocking and stretching payables.” The available information bears him out. Chrysler’s December 31 balance sheet showed negative working capital of over $6.5 billion, and a stunning in context $5.6 billion in trade liabilities. The company’s first quarter 2010 financial release included no formal financial statements, but given that its sales during the period trailed last year’s disastrous first quarter by over 5%, it’s hard to see how it generated $1.5 billion in cash without even more interest-free borrowing from suppliers and vendors.
The two bailed-out companies had better hope that industry-wide sales ramp up sharply, and soon. That’s because, despite the press’s attempts to minimize the impact, their competitors are eating their lunch in the U.S. market. A smaller piece of a fast-growing pie may be GM’s and especially Chrysler’s only hope.
GM’s March sales were barely ahead of Ford and Toyota, the latter in spite (maybe because?) of what has from all appearances been an orchestrated media-government campaign to discredit the company’s safety record. Chrysler’s puny first-quarter market share of 9.2% trailed Honda, and was barely ahead of Nissan.
The press continues to carry GM’s and Chrysler’s water, even when reporting poll results. Last week the Associated Press, after sitting on the information for 40 days, excitedly told readers that “Buy American” is back in the car business. Upon closer examination (i.e., looking at the actual poll data), I learned that Toyota’s loss of 10% in best-quality mind share during the past four years was essentially offset by a 9% gain at Ford. GM’s best-quality mind share dropped by 3%, while Chrysler’s stayed the same.
So the only so-called “Buy American” beneficiary has been Ford. Since the early March AP poll seems to have been timed to hit Toyota when it was most vulnerable, it’s reasonable to expect that the Japanese company’s best-quality perception will come back a bit — and when it does, it will likely hit GM and Chrysler much harder than Ford.
The government’s efforts at propping up its two weak wards even extend to its fuel-economy benchmarks, also known as greenhouse gas (GHG) emission standards. GM and Chrysler, with their heavier mixes of light trucks, have been given lower miles-per-gallon and GHG targets to hit in 2016 than their competitors. If saving the environment is so important, why do they get a break?
The GHG standards also have loopholes that would appear, at least initially, to benefit GM and Chrysler. Of particular interest is the so-called “super credit,” whereby a manufacturer’s sales of electric and plug-in hybrid vehicles (e.g., the Chevy Volt and a portion of whatever teeny-tiny cars Chrysler part-owner Fiat will try to foist on the public) might be counted multiple times in determining fleet-wide miles per gallon and GHG emissions. Further, a number of lawmakers believe that the two companies’ competitors may have been browbeaten last year into accepting stricter standards while GM and Chrysler were going through their bankruptcy proceedings. Tellingly, the Obama administration is refusing to release documents relating to those negotiations.
What is not yet known is the real wild card in the deck: How many more outraged Americans will refuse to buy GM and Chrysler vehicles because of the health care monstrosity foisted on the nation in March by the same government that controls them? We’ll begin learning the answer to that question when April’s figures come out.
I will NEVER buy from Government Motors.
All that add with the lying old codger did was remind me that GM completely ripped off their bondholders with their fake bankruptcy. I too will never buy another GM. (I did own a Saab and am glad they were sold off so I can consider them in the future)
If they lie about their finances, why would we trust their claims about their vehicles? False in one, false in all. Such transparent fraud suggests desperation. Or, worse, supreme confidence that they will not be called to account.
Maybe GM should hire that ‘Joe Isuzu’ guy to do the commercials.
Make sure Government Motors doesn’t sneak in the back door. I had to have some body work done last year, and 2 of the 3 shops my insurance company wanted to send me to were affiliated with GM or Chrysler dealers. Guess who got the job.
I will never buy a GM or Chrysler car; I will not permit my kids to buy such cars; I will not buy cars from whichever Chinese car maker eventually buys the GM and Chrysler assets when the companies fail again.
At least ONE guy in D.C. gets it.
Shockingly, he’s not a Democrat.
Ok, this begs for a response commercial:
“Hi, I’m General Motors, and a little over a year ago I borrowed 50 billion dollars from you the taxpayer. Well today we cut the government a check for 7 billion dollars and get to mark that as paid in full. Now we’re ready to start selling stock again, and we would like to reassure you that this same great rate of return we offered the taxpayers of the United States is now available for you…”
Related parody: New GM Cars Run on Efforts of U.S. Taxpayers http://optoons.blogspot.com/2010/04/new-gm-cars-run-on-efforts-of-us.html
Exactly.
With that opinion piece and wasted money on the TV ad, do they (GM and the union and union workers) think we the taxpayers are so easily fooled?
That says a lot about how they view their potential costumers.
When I saw that GM commercial paying back the loan, huh, what? I immediately thought of the ad just a few minutes earlier placing the failure of Wall Street reform, which Goldman Sachs endorsed, on the Republicans that don’t raise their money from the crooks. You would think the FCC would jump on both ads as false advertising?
I just bought a new car two days ago. I gave Ford first shot at my money. The car I test drove was a very good one but more than I needed (too big and too expensive). After looking at many other makes, I ended up buying a Toyota. GM and Chrysler were never even considered.
Count me in the ‘never buy G(overnment)M(oters) again club. At least until it is taken back from the unions and marxist leftist who stole it. When that is done, when all shares are distributed to those who pay income taxes on a dollar tax per share basis.. until then this diehard GM man is buying elsewhere.
In fact I will be buying a Ford Super duty 450 at the first of the year. The left and obama can kiss my ash.
I buy only buy cars and trucks made in the American South (or West). And now specifically not from GM or Chrysler.
Born in the U.S.A. – NYTimes
The cars and trucks that are currently built in the United States.
http://www.nytimes.com/interactive/2009/06/19/automobiles/20090619-auto-plants-4.html
I was a long time GM buyer (Chevy and Pontiac to be specific) but ever since the bailouts I’ve steered elsewhere. Namely my last vehicles have been, in order: Mazda, Mazda, Mazda, and Ford.
Tom Blumer is an f’ing idiot. He constantly spins any news that concerns GM in the most negative, unflattering way possible. He wouldn’t recognize the truth if it hit him between the eyes.
Further, it wouldn’t surprise me to find that he’s on Toyota’s payroll.
Die, troll.