GM pays back its loans and Whitacre stirs up some controversy

Posted by: David Welch on April 29, 2010

You’d think that General Motors Chairman and CEO Ed Whitacre, who built AT&T with $200 billion worth of deals, would be a savvy poker player. Well, judging from the grousing over his recent television ad, in which he talks about paying off the government’s loans ahead of schedule, he may have overplayed his hand. Yes, GM paid off $8.4 billion in loans to the U.S. Treasury and the governments of Ontario and Canada about five years early. But crowing about it in a television commercial has generated some controversy.

You don’t have to go too far to find someone in the commentariat grousing about how GM paid back the loans. The gripe is that GM paid the debt portion of the government’s investment with cash the company got from the government’s equity investment. Here’s how it works. When GM emerged from bankruptcy, it got $49.5 billion in cash. The U.S. Treasury and governments of Ontario and Canada gave GM $8.4 billion in loans. The rest of the money was given to GM in exchange for stock. The U.S. government owns 61% of the company and Canada owns 11.7%. Back in July, the feds decided to give GM enough cash to get through a longer, deeper recession, according to a former member of President Obama’s Auto Task Force, who asked not to be named because the discussions were private. As the economy started to recover and auto sales have climbed, GM found it had more cash on hand than it needed. Repaying the government loans wasn’t such a hard thing to do. So when Whitacre goes on television saying “we have repaid our government loans, in full, with interest, five years ahead of the original schedule,” his comments raised a few hackles. “They were repaying Uncle Sam with money they already got from the government,” snapped Maryann Keller, an independent consultant in Stamford, Conn. Senator Chuck Grassley (R-Iowa) weighed in during his weekly webcast calling Whitacre’s television appearance, “a little bit disingenuous.” He also said, “They’re paying it back with bailout money that they have from the federal government in the first place.”

To be fair, there is plenty of politics in play. Some critics simply didn’t like the bailout in the first place. The early payment is a small sign that GM’s business is getting back on track. If the company’s sales were tanking and cash flow was a problem, they’d keep all of the money until things turned around. GM’s sales are up 18.4% this year. GM-North America President Mark Reuss has done a commendable job of reining in incentive spending, giving GM better pricing on its cars. The company may turn at least an operating profit this year. So far, Whitacre and GM are doing many of the things they need to do to turn the business around.

The problem is that the early payoff shows only that GM is stable enough to give some money back. They aren’t making big profits yet. It’s one small benchmark on a longer haul. Going on television raised a hue and cry to a feat that some see as pretty marginal. There’s one other problem with Whitacre’s ad. He kicks it off by saying, “a lot of Americans didn’t agree with giving General Motors a second chance. Quite frankly, I can respect that.” Why would Whitacre want to remind Americans that the company needed to be bailed out? GM has a bit of momentum in the market. Vehicles like the Chevrolet Camaro, Buick Lacrosse sedan and Cadillac SRX and Chevy Equinox SUVs are red hot. Clearly, plenty of consumers are getting past the now-tired “Government Motors” tag and buying GM’s cars on their merits. If Ed goes on TV again, he might want to start with that.

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Reader Comments

Cameron McNaughton

April 29, 2010 04:38 PM

It doesn't seem likely that Whitacre woke up one day and said let's do an ad about the fact that we paid back the loans. I think the ad reflects the quality of advice that he is getting from his marketing team. I'm afraid that the advice doesn't seem all that great:

Brian in Illinois

April 29, 2010 04:40 PM

Count me as a critic. This is bending the truth into a pretzel. The government and the unions own most of GM. Does anyone think they can sell stock of GM on the open market?

He's also not talking about how many suppliers GM put out of business by not paying for services and equipment it bought. How many jobs did that cost? The whole message feels forced and fraudulent. The whole truth seems hidden in plain sight.

GM beleiver

April 29, 2010 06:11 PM

Whenever you are as big as GM, you are going to have critics. Smart people will heed Warren Buffets advice of "Buy when others are fearful" and buy GM stock, which is selling for about 70 cents a share. This is one of the biggest bargains of all time. People are already starting to buy Chevys again, especially since many are afraid of Toyota's. GM and America will benefit from Toyota's gas pedal defect fiasco.

Tim Gallien

April 29, 2010 06:44 PM

Nope
They just transferred debt
oops
Its kinda like saying you (CAN) pay the bill because you moved some money from savings to (bill paying) or checking. But no money has left the account.
Oh we are good for it, trust me.

INFOWARS

Peter Angel

April 29, 2010 06:52 PM

To Brian of Illinois, wow who do you get your information from, have you ever seen how much these suppliers were ripping off our North American automakers or do you prefer to know that over 75% of the suppliers were giving better prices to the foreign automakers because their credit was better. Kick us while were down and drag our ass into bankruptcy, is that the motive in America! Good work to the government for saving GM, we also saved at least 5 million jobs that would of gone down with them! Support your economy, this recession should of taught a lot of people something important! Long live the General!!

toby

April 29, 2010 07:22 PM

Whitacre fancies himself as the new Lee Iacocca. Thirty-something marketing monkeys watching old Chrysler ads is a poor way to formulate an advertising campaign. Fire them all and start fresh.

greg

April 29, 2010 09:06 PM

The article clearly says that the Govt's of the US and Canada basically bought their stock. So... that money is theirs to do with what they will and not bailout money per say as the Govt is now making money from the rising stock price. If GM owes there subs money it is now time for them to negotiate a settlement. Yeah it sucks but that is the risk you take in business and if the original loans were not given with stipulations about repaying creditors, then you can blame the negotiators of the loan/bailout deal. That by the way is the guys now making money from the rising stock price.

ns

April 29, 2010 09:49 PM

This is GM we are talking about here - they are not famous for creativity in ANY arena.

rsa

April 29, 2010 11:36 PM

Way to go Mr. Whitaker. Now return the remaining $42 billion, buy back all the equity, and if you still have any balls or backbone left, retroactively pay back all those suppliers that your predecessor put out of business or the employees they had to lay off. And if you can't do that, stop all the nonsense on the TV. GM has plenty of blood on its hands.

VA Chevrolet Dealer

April 30, 2010 08:51 AM

So, you borrow money, you realize you don't need it, you pay it back. What's the big deal. If they had taken the whole 6 years to pay it back, the press would still say they paid it back with the money they borrowed. People keep calling it a bailout, but it's really just an investment made by the only single entity that had the where with all to make it. Yes GM will be able to sell it's stock, and you should hope you can find a way to get in on the deal. Under Whitacre and Ruess' leadership, The New GM (within 5 years) will be one of the most profitable companies in the world. I am a Chevrolet Dealer who is seeing progress on the inside, that people in media and those on the outside do not get to see.

Phil

April 30, 2010 09:11 AM

The reality is this; GM is coming around and some people, for various reasons, aren't happy about it. GM, for all its management issues of the last 20 years, has been continually improving its products. On average, they are as good as any on the market. Therefore, they are selling better, generating cash. This is not the Chrysler bailout of the early 80s where they essentially had no product.

This moving money is not "disingenuous". It is a common "bookkeeping" practice for nearly all companys. They move money from lower cost debt to pay higher cost debt. Its a way of reducing debt that even the private citizen uses; thus the home equity lone. Is that disengenuous? With normal stocks, it is called using invested capital.

Get over it.

Darren

April 30, 2010 03:43 PM

I don't see the problem. So GM did a better job at restructuring to the point where it didn't need all the Government's money, so they gave it back to pay off the debt. Would people have preferred them to squander the money, not restructure as well, and then have to wait for profit to pay it back???? No different than going to a bank for a home improvement loan for $50,000, only using $30,000 because I did a better job at buying supplies, and giving the $20,000 back to pay off that much of the loan. I borrowed $50,000 and paid back $20,000. I guess I could foolishly squander the other $20,000 and then have to wait to pay it back monthly, costing me interest. GM did a good job at restructuring, used the share-ownership money from the governments instead of the loans to do it, and now they get crap for doing the RIGHT business thing and paying it back to save interest and get tax-payer money back to them? Remember people, critics, whether political critics, automotive critics, or movie critics,are PAID to strike up controversy. Sadly, people fall for it.

TampaDetroit

April 30, 2010 04:17 PM

I'd say Whitacre mentioned not many Americans wanted to give GM a second chance because America loves an underdog and southern accents. It's a pity party, but hey, whatever gets people in the showrooms. And as you mention, they have some excellent new vehicles. I personally liked the ad. Both on TV and radio. I think some people feel a little bad about not getting behind their own American auto industry. In the meantime, we get sudden acceleration in our Japanese cars and lead in out Chinese toothpaste and drywall. What the heck, maybe we should take another look at U.S. cars. Also, I think some Americans are like me and really don't get the whole financial dealing going on between government and industry. But keep informing us, Mr. Welch, at least I can kind of understand your synopsis.

Bob In Scranton

April 30, 2010 04:58 PM

Whitacres' attempt to "whip" GM into the black is not going to work. Regardless of their ads, GM vehicles still lag behind the competition in quality, comfort, styling, performance and price. Car buyers want reliable, affordable transportation and are also willing to pay for quality and comfort. Unfortunately for GM, they don't offer either. Overpriced.

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Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.

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