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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