When Will GM Pay Us Back?

You surely know the story: General Motors (NYSE: GM  ) , after decades of mismanagement, was ushered into bankruptcy by the Obama administration at the height of the financial crisis and radically restructured -- with the help of some hefty loans from taxpayers.

Regardless of your feelings about the bailout (or the president, and it's worth noting that loans to GM were made under both Presidents Bush and Obama), here in 2012, it's clear that the restructuring was a big success from a business perspective.

GM is booking big profits and creating new jobs, and its latest models like the Chevy Cruze are extremely competitive with rival models from Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) . The company is posting solid growth in overseas markets even as overall industry sales in places like China are slowing.

In many ways, General Motors has moved on -- successfully -- from the bailout and the dark days of early 2009. But in one big way, the bailout is still a big issue: Taxpayers haven't gotten their money back.

Technically, GM has already paid us back. But...
Under the terms of the loans made to GM under the Troubled Asset Relief Program during the financial crisis -- just under $50 billion worth in total -- GM was to pay part of the balance back in cash, and part with GM stock.

That has been done. GM had until 2015 to pay back the cash, but former CEO Ed Whitacre chose to do it early: The last payment, about $4.8 billion, was made two years ago. Meanwhile, the government was given a 60.8% equity stake in post-bailout GM. Officially speaking, that action settles the debt.

Here's the problem: The cash plus the stock hasn't (yet) added up to the $49.5 billion lent. So far, according to GM, about $23.1 billion has been "repaid or returned to the U.S. Treasury":

  • $6.7 billion in cash, the last of which was that payment made in April of 2010
  • $13 billion via GM's IPO, when the government sold about 45% of its stock holdings
  • $2.1 billion, when GM bought back some preferred stock from the Treasury in late 2010
  • About $800 million in interest and dividends on the loans and preferred stock.

That still leaves over $25 billion to be "repaid." But the government still holds 500 million shares of GM common stock, a 32% stake in the auto giant. At $25 a share, roughly where GM has been trading recently, that's $12.5 billion -- a bit less than half of what is needed to square accounts.

That's a problem.

What can GM do?
Simply put, not very much -- at least not right now.

As GM spokesman Selim Bingol wrote in a blog post on Wednesday, the timing of the government's sale of its remaining GM holdings is "anyone's guess (we have no say in the matter)." Unless GM stock soars, it's a safe bet that nothing will happen before the presidential election -- but after that, it's indeed anyone's guess.

What GM can do in the meantime is what CEO Dan Akerson and his team have already set out to do: Continue to fix and improve GM's global businesses and its balance sheet. More best-in-class vehicles, a global model-line consolidation patterned on Ford's (NYSE: F  ) successful approach, a fix to the money-burning European operation, and a resolution of GM's huge pension liability are all works that are very much in progress -- and all are likely to help improve GM's share price.

Boosting the share price will help reduce the gap between the stock's value and the amount owed, but it seems unlikely that GM stock will hit the price needed for the Feds to break even -- about $53 -- any time soon. More likely is that the government's eventual sale will still leave it several billion short.

What then? GM could offer to pay the difference in cash, and Akerson well might. A former Naval officer, Akerson is known to see his role at GM as something of a patriotic duty. GM won't be obligated to pay a cent, but paying back the government in full might well appeal to him – and the public.

GM has over $30 billion in cash now. Assuming that the company's pension situation can be resolved without a major payment that eats up a big part of that cash pile -- a big if -- GM's board might decide that using some of its hoard to pay the balance of its loan is in the company's best interest. We shall see.

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Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (15) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 22, 2012, at 3:35 PM, Jazzenjohn1 wrote:

    That total owed to the taxpayers also doesn't include the money loaned by Bush in 2007 4 Billion, and Jan. 2008, about 13.4 billion more IIRC. They shuffled off that debt during the bankruptcy. They could and should pay the money back, but I doubt they will. They barely acknowledge they ever owed it at all. Same for Chrysler, they got 4 Billion prior to bankruptcy and several billion went with the company when it was given to Fiat. That puts Ford at a competitive disadvantage for simply playing fair.

  • Report this Comment On March 22, 2012, at 3:44 PM, dennypat38 wrote:

    Gm paid some loans BACK but used other TARP MONEY BAIT and SWITCH. So in realty GM NEVER PAID BACK A DIME FACT and if Gov't sells at 40 GM will still owe us 35-40 BILLION FACT

  • Report this Comment On March 22, 2012, at 4:07 PM, randyc305 wrote:

    as anyone who ever has investedknows, when u take stock as a option it might take a while to pay off, if the govt wants to sell now it is free to do so , but since that would be idiodic at this point i sugust u shut up and watch write again next year when stock is over 35.00 then the govt can sell at a profit it will be a lot more return than the banks gave back , by the way i did not see the govt reciving stock in the banks that recived fed money

  • Report this Comment On March 22, 2012, at 4:26 PM, sheldonross wrote:

    I "sugust" you learn to read and write. Even at $35 dollars, we don't break even.

    "but it seems unlikely that GM stock will hit the price needed for the Feds to break even -- about $53 -- any time soon. "

  • Report this Comment On March 22, 2012, at 4:31 PM, TMFMarlowe wrote:

    @Jazzenjohn1: I hear you, but that's what bankruptcy is for. If subprime hadn't melted down and the economy cratered when it did, GM might well have made it and (eventually) paid everyone back without bankruptcy, but we'll never know.

    Thanks for reading.

    John Rosevear

  • Report this Comment On March 22, 2012, at 4:32 PM, BMFPitt wrote:

    Never.

  • Report this Comment On March 22, 2012, at 4:56 PM, wolfman225 wrote:

    The only "payback" was Obama to the UAW at the expense of the bond holders, who should have been the first to have been made whole under bankruptcy. Instead, they were forced to take a bath while the union pension was saved.

    IMHO, but I don't think the government will ever get rid of it's stake in GM. It's too valuable a tool in the administration's drive for "green" vehicle technology.

  • Report this Comment On March 22, 2012, at 9:14 PM, lowmaple wrote:

    The Pensions the union got may not seem fair but at least someone other than the big bankers will have money to spend in the U S.

  • Report this Comment On March 22, 2012, at 9:16 PM, FoolingAround313 wrote:

    How much has GM paid the government in cooperates taxes since bankruptcy? How much have GM employees paid the government in income taxes since bankruptcy? Between GM paying the U.S. cash, the U.S. selling GM stock and the U.S. cooperate and incomes taxes, the federal government will make billion in profits off GM in just the next 5-10 years. This is before we even factor in that 250,000 GM jobs were saved and hundreds of thousands of tier 2 supplier jobs were saved. U.S. is already making profits off the GM loan.

  • Report this Comment On March 22, 2012, at 9:17 PM, TMFMarlowe wrote:

    @wolfman225: Were you a GM bondholder?

    John Rosevear

  • Report this Comment On March 23, 2012, at 1:39 AM, FoolingAround313 wrote:

    How much has GM paid the U.S. government in cooperates taxes since bankruptcy? How much have GM employees paid the government in income taxes since bankruptcy? Between GM paying the U.S. cash, the U.S. selling GM stock and the U.S. cooperate and incomes taxes; the federal government will make billion in profits off GM in just the next 5-10 years. This is before we even factor in that 250,000 GM jobs were saved and hundreds of thousands of tier 2 supplier jobs were saved. U.S. is already making profits off the GM loan. Sad that uneducated people think giving GM loans, which the U.S. will make tens/hundreds of billions off in taxes revenue, during the biggest financial meltdown since 1929, that kept GM liquid during bankruptcy, was a bad decision by Bush and Obama.

  • Report this Comment On March 23, 2012, at 10:13 AM, dallas007 wrote:

    If one can see that no firm on Wall Street was willing and or able to liquidate/bail out GM at the very same time they too were in the ICU. Fact is that they created the melt down (Wall Street) and this has become a political issue since the UAW an enemy of the conservative aka cheap labor party. Wall Street created the subprime disaster, which lowered real estate values and eroded the job market. Both of these are big sources of gov't income/revenue. You also fail to mention the gov't of Canada and the UAW pension being pertners with our gov't in this undertaking which was impossible by any Wall Street institution, including Bain Capital. One should also note that Wall Street institutions who took TARP, repaid it by floating new issues, thereby diluting shareholder value. This was done to get their greedy little paws of that bonus, which reeks of the welfare entitlement mentality on Wall Street. They sold out shareholder value for personal interest. It would be preposterous to suggest that those bonus payments were earned PERIOD.

  • Report this Comment On March 23, 2012, at 10:39 AM, wolfman225 wrote:

    @John Rosevear--

    I was never personally a GM bondholder. My comment was based on news reports and conversations with friends and family who did hold a stake in the company.

  • Report this Comment On March 23, 2012, at 4:26 PM, Jazzenjohn1 wrote:

    @John Rosevear,

    There was no one in the world that believed the initial money would do anything more than hold off bankruptcy while they negotiated favorable terms for it. It was presented even then as money to tide them over while they came up with restructuring plans. I'm not against the bailouts for the automakers, but now that they are profitable they should pay back what they owe not only to be fair to taxpayers/customers, but also Ford, especially since it was so divisive. Ford went to Washington with them, not to get money, but for support. Now, when they have been forgiven so much debt, and kept Billions more in tax writeoffs that should have disappeared in bankruptcy, any incentive, any advertisement, any low cost financing option from GM or Chrysler is in effect taxpayer supported.

    In the airline industry, bankruptcy was very beneficial to whoever did it, and created zombies out of those that didn't. I'm certain that will not happen with Ford, but the taxpayer subsidy of the competition steals some of the rightful success of Ford.

    <@Jazzenjohn1: I hear you, but that's what bankruptcy is for. If subprime hadn't melted down and the economy cratered when it did, GM might well have made it and (eventually) paid everyone back without bankruptcy, but we'll never know.>

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