The True Story Behind GM's "Loan Repayment"

-- Street coin trick - Illustration --If you watch television regularly, then there is a good chance that you have seen a commercial that features the chief executive of General Motors, Ed Whitacre, claiming that the company has repaid has their government loan "in full, with interest, five years ahead of schedule."

Fact or fiction? Did General Motors actually pay back approximately $6.7 billion in government loans?

This claim is technically true, but highly misleading.

If you had no knowledge of the current situation at General Motors and watched this commercial on TV, your first reaction would almost certainly be that General Motors was doing so well that they were able to repay their loan ahead of time.

In fact, this is not the case at General Motors - far from it.

The real story, according to the New York Times, involves something that Senator Charles E. Grassley (Republican, Iowa) is calling the "TARP money shuffle."

On April 21st, 2010, General Motors "paid the balance of its $6.7 billion loan under the Troubled Asset Relief Program."

One day earlier, Neil Barofsky, the inspector general overseeing TARP, testified in front of the Senate Finance Committee and revealed a key point about the upcoming repayment of GM's loan - GM would be using "other taxpayer money" to make the loan repayment.

Senator Grassley seized on this comment and asked the Treasury Department for more details.

A few days later and Grassley learned that the money for the repayment of the loan "had come from a taxpayer-financed escrow account held for the automaker at the Treasury."

So, General Motors paid back their $6.7 billion loan (from generous US taxpayers) with money that was provided to it by taxpayers.

"The TARP money shuffle" - it's hard to argue with Grassley's choice of words.

The Treasury maintains that the money in the escrow account is the "property of GM".

Some people are trying to spin this recent revelation this way - "GM is obviously doing well enough that they didn't need that nearly $7 billion that used to be in the escrow account."

The problem is that the true story of this loan repayment wasn't known to the American public. After watching the commercial featuring Ed Whitacre, the average person would come to the conclusion that General Motors had paid the loan off because they were doing better than expected. The true story is that General Motors shifted money from their escrow account (of which the funds had been provided by the US taxpayer) to pay off the remainder of their loans.

All in all, the marketing campaign has been pretty misleading and doesn't tell the full story. Should General Motors really be misleading the US taxpayer, who owns about $2 billion of GM preferred stock, plus 60.8% of the company's equity?

Source: New York Times - Repaying Taxpayers With Their Own Cash

Filed under: General Knowledge

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