General Motors Still Owes You

It was the worst-kept secret in Detroit, and now it's official: General Motors's CEO Ed Whitacre announced on Wednesday that the automaker has repaid the balance of its bailout loans -- $5.8 billion -- well ahead of schedule.

Frankly, it isn't much of a surprise, given that Whitacre said in January that the company would try to pay off the debt by June -- but GM's ability and willingness to pay the debt now could well be a sign that GM's financial picture, believed to be looking up after a $4.3 billion post-bankruptcy loss in 2009, is solidly on track.

Of course, it could also be a sign of something else.

Accelerating the schedule
GM, of course, didn't need to be making this payment now. Under the terms of the bailout -- technically, a series of loans from the Troubled Asset Relief Program that began in December of 2008 -- the company had until 2015 to repay.

GM could have said, "Look, we're making progress and everything, but for cash flow reasons we'd like to spread these payments out over the next few years." Chrysler doesn't plan to repay its TARP loans until 2014, and other major TARP recipients like GMAC and American International Group (NYSE: AIG  ) still have balances outstanding as well.

There's no reason GM couldn't have taken the same road, officially speaking.

A case of blue oval envy
But GM, which had already paid back $2 billion of what it owes, is clearly itching to be done with this TARP thing. While GM's senior executives were probably chafing under the pay restrictions that famously came with TARP aid -- and that helped drive other TARP recipients such as Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) to repay their own loans early -- there was clearly another factor at work here.

Simply put, Whitacre clearly believes that the stigma attached to the bailout has hurt the company's business. Or, more to the point, that the lack of stigma attached to Ford (NYSE: F  ) , which famously declined TARP aid at the peak of the crisis, has been a big factor in the Blue Oval's dramatic success of late.

But will paying back this $4.7 billion -- plus an additional $1.1 billion owed to the governments of Canada and Ontario that GM paid as well -- really remove the "Government Motors" stigma? And will removal of that stigma help GM keep pace with both domestic rival Ford and foreign nemesis Toyota (NYSE: TM  ) , which despite a mountain of bad press, has juiced sales numbers via aggressive incentive programs?

I'm skeptical.

Yes, $6.7 billion is a lot less than $50 billion
GM only owed $6.7 billion in payments on the $50 billion it received in TARP loans because the government has already been "repaid" for the rest -- in GM equity. The U.S. government owns 60% of post-bankruptcy GM, and this, as much as anything else, is responsible for the stigma attached to General Motors at the moment -- one that will probably endure for a long time to come.

GM, of course, sees the loan repayments as a milestone on the road to an eventual IPO. It's only after GM is once again public -- and after the Feds sell their GM stock, a process that will presumably take some time -- that the TARP loan will truly have been repaid. That's the point at which GM can start to think about overcoming the bailout stigma.

Whitacre's unfortunate predecessor as CEO, Fritz Henderson, had said that GM would try to go public sometime this year. Whitacre's team has backed off of that commitment, with new CFO Chris Liddell recently saying that GM's IPO would happen when the company, the equity markets, and the state of the global automotive business were all ready for it to happen.

So when will that be? Given the aggressive way in which GM has moved to repay the TARP loans, and given Whitacre's famous impatience with the pace of GM's recovery, a General Motors IPO later this year doesn't seem out of the question. But I think it'll take a lot longer for GM to overcome the stigma of the bailout. And meanwhile, GM may need to get used to an unfamiliar sight -- its ancient rival, Ford, surging ahead.

Do you think GM is likely to overcome the bailout stigma any time soon? Scroll down to leave a comment and let me know.

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Fool contributor John Rosevear owns shares of Ford. Ford is a Motley Fool Stock Advisor choice. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (14) | Recommend This Article (9)

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  • Report this Comment On April 21, 2010, at 3:21 PM, MrCainThaler wrote:

    Far from ever buying a GM automobile, I have resolved to <i>never</i> buy GM stock or finance <i>any</i> of their debt. The transgressions against GM bondholders were some of the most blatant acts of contempt for contract law to have ever been witnessed in this country. That the inherent rights of these creditors were so visibly spat on is a travesty to justice and I hope every day for retribution against the members of our government that did it.

  • Report this Comment On April 21, 2010, at 3:22 PM, MrCainThaler wrote:

    a

  • Report this Comment On April 21, 2010, at 3:43 PM, Networker50 wrote:

    I would agree with Mr CainThaler here. The utter contempt was over the top. It is a sad thing as GM does have some car models I had been considering such as the newer Camaro. I owned one as a young man and would have liked to buy the new model as it has some nice features and good looks. I think, though I may have to buy a Mustang instead. I owned one of those previously as well and liked it. GM was poorly managed and had no method to help it get through hard times which resulted in the bailout. Just as everyday folks need to try and have some reserves so do corporations. Those who don't won't get any of my investment dollars.

  • Report this Comment On April 21, 2010, at 3:58 PM, wigginsrl wrote:

    Does Government Motors expect people to so quickly forget that they stiiffed their creditors and investors and will never repay them?? "Repayment of debt" is a ludicrous concept when you can just declare bankrupcy and present your "get out jail free card" stolen by Uncle Sam from those same investors and creditors!!

    And Ford, a real company, not a wellfare state enterprise, has to compete with the U.S. government who can steal from the taxpayer at will on behalf of their Government Motors..

    They only way I can stop my blood from boiling is to not think about GM at all. Doubt I'll be in their showroom anytime soon!

  • Report this Comment On April 21, 2010, at 4:02 PM, baldheadeddork wrote:

    I think there is a segment of the market that will never move past Government Motors. What's worse, a lot of these people will exaggerate GM's failure and the government's actions as the years go on, if the tales I've heard in the last two years about Chrysler's bankruptcy thirty years ago or the government spending billions to bail them out in 1980 are any guide. There is a segment of the population that gets their rocks off rooting against the US auto industry, and what's happened to GM is going to give them a lifetime of material.

    But I don't think that stigma is universal, and I don't think it's going to be the deciding factor in GM's fate. The automakers are like sports teams. Everyone has an opinion, and the opinions mostly reflect how the team is doing on the field. Everyone is going to talk about Government Motors, but most of that goes away if they're winning - if they have a hot lineup of cars that people want to buy. I don't see that in any of their upcoming products.

  • Report this Comment On April 21, 2010, at 4:09 PM, bigcat1969 wrote:

    That was a famously good writeup.

  • Report this Comment On April 21, 2010, at 4:50 PM, wigginsrl wrote:

    Baldheadeddork has a good point but I'm not sure it's the one he was trying to make. Companies which do not compete successfully must be allowed to fail if the buying public is to receive quality product choices. Chrysler learned little from their previous bailout, and so far GM doesn't seem to be learning anything. For example, when Nissan announced plans to deliver an affordable electric car, Ford responded with plans to present a similar-priced competitive car. So far GM plans to present a much more expensive alternative(?). But if you can count on being bailed out, you can be more relaxed about being competitive, can't you?

  • Report this Comment On April 21, 2010, at 6:43 PM, plange01 wrote:

    GM the bankrupt disgrace is being forced to speed up the sale of its remaining assets repay the taxpayer welfare it recieved and to close by the end of 2010..GM will still have to answer for cheating thousands of stockholders and other crediters out of billions with its ridiculous obama aided pre packaged fake bankruptcy.there is no place in america for this disgrace and anyone buying a car from a company soon to close is a total fool.....

  • Report this Comment On April 21, 2010, at 9:53 PM, Electricfish wrote:

    I actually think ford should have gone bankrupt in 2006 when they had the chance, instead of sinking themselves in a mountain load of debt. They just got plain lucky that they got the credit before the financial crunch and that speaks nothing about how good their management is, but it is going to come back to bite them. GM, Ford and Chrysler have been victims of irresponsible and incompetent management, a schizophrenic US government and greedy unions.

  • Report this Comment On April 21, 2010, at 9:59 PM, viyer00 wrote:

    No way. Even though I own a piece of that worthless company through my misspent hard-earned tax dollars, I would love to see it fail. It is just inconceivable to me why anybody would want to support GM or Chrysler ever again after they extorted the American public for 50 billion dollars. Its capitalism. There are many other (better) car companies out there, support them instead and let these scumbags fail.

  • Report this Comment On April 21, 2010, at 10:05 PM, Electricfish wrote:

    Yea, i ride a bike now, who needs cars?... and i took out all my money from wall street... those greedy bastards take us tax payers money, gamble with it and wine and dine in the spoils, and then get bailed out by us! I will never put one penny of my money into wall street or with the big banks, and will never buy an american car or any car.

  • Report this Comment On April 22, 2010, at 8:01 AM, Godaby wrote:

    I bought a GranPrix in 97 and still love the car. However, I will not EVER buy another GM vehicle. Too bad the rest of us can't declare bankruptcy and come out on top. We have a small family business and if we don't get paid by the people who owe us money,the government isn't coming to our rescue. When I'm ready to purchase the next vehicle, the search will start with Ford.

  • Report this Comment On April 22, 2010, at 10:11 AM, HOGridin wrote:

    "with its ridiculous obama aided pre packaged fake bankruptcy" - I believe it was the Bush administration that crafted the plan and provided the capital for the initial bailouts. Just sayinig....

  • Report this Comment On April 22, 2010, at 10:48 AM, BMFPitt wrote:

    "Repaid" or not, I will never buy a Government Motors car again, ever. Nor will I deal with any bailed out bank to the extent possible.

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