TOPICS > Economy

GM to Repay Government Loans Early, Cites Profit Progress

November 16, 2009 at 12:00 AM EDT
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Despite reporting more than a billion-dollar loss since July, General Motors says it expects to pay the federal government's bailout money back five years early. Gwen Ifill speaks with David Shepardson of the Detroit News for more.
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JIM LEHRER: Next tonight, Gwen Ifill updates the General Motors story, its progress on both the business and bailout fronts.

GWEN IFILL: The bad news: General Motors announced today that it’s lost more than a billion dollars since July. The good news: In spite of that, GM chief executive Fritz Henderson said, the troubled auto company will pay back about a billion dollars it borrowed from the federal government, five years ahead of schedule.

Henderson was asked today about the timing of the announcement.

FRITZ HENDERSON: I have probably been asked the question since the bankruptcy, I don’t know, actually, probably 100 times, when are you going to start paying back the taxpayer?

The answer is now. So, I mean, I think it’s a commitment of the company that we need to start doing this. And the best place to start is with the loan and to agree to a repayment schedule and begin the process. This is — we absolutely felt was the right thing to do.

GWEN IFILL: For more on the general health of General Motors, I’m joined now by David Shepardson of The Detroit News.

Welcome.

DAVID SHEPARDSON: Thanks.

GWEN IFILL: So, basically, GM used taxpayer money to pay back taxpayer money; is that right?

DAVID SHEPARDSON: I mean, in a nutshell.

I mean, basically, the U.S. government gave General Motors about $50 billion in taxpayer loans starting in December and going through July. At the end of their bankruptcy, they gave them $16 billion in exit financing: Put this in a special account that requires government approval to spend the money.

It was for contingencies, if the economy really went south, to pay various obligations. And because things have gone better than GM and the Treasury expected, GM is going to start using that money to pay back the loan, ahead of schedule.

GWEN IFILL: So, it doesn’t mean that, somehow, they are paying down the loan, or that somehow the U.S. taxpayer is going to come out ahead in the end.

DAVID SHEPARDSON: Well, certainly not ahead, but, look, GM has this money. They could hold on to it. I mean, initially, in July, company executives suggested they might not use any of the money to pay it back. They might use it for pension obligations or other — or other expenses.

So, it is a sign that GM is doing better than expected. But it’s not as if this is new money that GM has earned to pay the taxpayers back.

Bankruptcy shorter than imagined

David Shepardson
Detroit News
The bankruptcy was far shorter than anybody imagined...GM reopened assembly plants. They added more workers. And, so, yes, you have to give part of the credit to cash for clunkers.

GWEN IFILL: Exactly. It is hard to imagine losing a billion dollars and also being able to pay down a loan.

DAVID SHEPARDSON: Right.

GWEN IFILL: Most people can't quite factor that through.

DAVID SHEPARDSON: Right.

GWEN IFILL: How does this compare to what -- the good news that Ford, which did not take government bailout money, that they gave us last week?

DAVID SHEPARDSON: Well, you know, Ford surprised a lot of people. They had a billion dollars in profits. And you are right. They have been doing a lot of self-help measures. They are reducing their debt by, you know, talking to their bondholders. They have gotten concessions from the UAW.

And what Ford did was, they went out, you know, several years ago and borrowed, you know, on every asset they have, including the blue oval, whereas GM didn't borrow money, waited too long. And, then, when they went to borrow money, the credit crisis happened, and they couldn't borrow anything.

GWEN IFILL: Did the Cash for Clunkers program, in which people were able to turn over their...

DAVID SHEPARDSON: Right.

GWEN IFILL: ... gas guzzlers and get deals on new vehicles, did that help GM with its bottom line?

DAVID SHEPARDSON: Absolutely. I mean, there were three key things.

One, the bankruptcy was far shorter than anybody imagined. It was only about 40 days, rather than 60 to 90 days. Cash for clunkers sold about 700,000 cars. And while Detroit automakers weren't helped as much as -- as Japanese automakers and -- and German automakers, it did give them a shot in the arm.

GM reopened assembly plants. They added more workers. And, so, yes, you have to give part of the credit to cash for clunkers.

GWEN IFILL: So, is GM still considering the possibility of going public at some point?

DAVID SHEPARDSON: They are going to have to. I mean, remember, you and I own GM. The taxpayers own 61 percent of GM. And the president and Treasury, they want to sell as fast as possible. But, when you own that much stock, it takes an awful long time.

At the earliest it would be is next -- next June, July, some time in the second half of 2010. That could be pushed back, you know, because the economy is weak. And it is unclear what the appetite is to invest in GM from -- from investors at this point.

GWEN IFILL: Because you and I own 61 percent of GM -- I like thinking about it that way for just a moment -- is it possible that we could call in our loan, we could sell a portion of GM, before they had a chance to go public?

Selling GM

David Shepardson
Detroit News
In order for us to get the rest of the money back, when GM goes public, those shares of stock have to be worth enough to equal that $42 billion.

DAVID SHEPARDSON: You know, that was an idea that Senator Lamar Alexander from Tennessee has suggested, basically taking all of the shares of stock, distributed them to every taxpayer in America. It hasn't gotten much traction.

I mean, the Obama administration wants to -- to sell, you know, basically keep the company on a solid footing, you know, in an orderly process. And the argument against that is, if you have 200 million taxpayers each selling shares, how would that work? It would be awfully complicated.

GWEN IFILL: So, that is not a real possibility?

DAVID SHEPARDSON: Not -- it doesn't seem realistic right now.

GWEN IFILL: So, even if GM were to start ahead of schedule...

DAVID SHEPARDSON: Right.

GWEN IFILL: ... repaying the government loan, how much could the taxpayer still be on the hook for, assuming -- in the best-case scenario?

DAVID SHEPARDSON: Right. A great question.

I mean, so there was $50 billion in loans. The taxpayer swapped basically about $42 billion of the loans for that 61 percent stake. So, we don't have a loan anymore. We have a loan for $6.7 billion. We have some preferred stock, but that is the key number, the $6.7 billion. That is the number that GM will pay back.

In order for us to get the rest of the money back, when GM goes public, those shares of stock have to be worth enough to equal that $42 billion. According to the GAO, the congressional oversight panel and the former auto czar, Steve Rattner, they all agree we probably lost a sizable amount. It could be as much as $25 billion.

But, as Fritz Henderson said today, they're out to prove GAO wrong. And the way they do that is by improving the company, so, when it comes time to sell those shares, they're worth more than -- than all these groups have found so far.

GWEN IFILL: Improving the company, exactly. What are they doing to speak to the competitive pressures that put them in the position they are in now?

DAVID SHEPARDSON: Right.

The key is new -- new products, new launches, sort of a commitment to -- you know, in the old days, GM would rush new models out. One of their key models is Chevy Cruze, which is a traditional vehicle, not a hybrid, but it will get about 40 miles per gallon.

They delayed the launch by three months in order to get it right. And I think GM is really trying to win back customers who have basically given up on them.

You know, maybe they had a bad vehicle in the early 80s. And they just said, I'm not going to ever even consider a GM or an American car again. And they want to get people back in the showrooms to give them a chance.

And I think they point to these quality surveys that show that American cars are, you know, by most measures, you know, just as good as any other foreign car. But too many customers, especially on the coasts, aren't giving American cars a chance.

GWEN IFILL: And there is a lot of talk about Chevy Volt, that hybrid vehicle that -- they are pinning so many -- much of their hopes on that as well.

Creating a new image

David Shepardson
Detroit News
They know the bailouts are horribly unpopular.

DAVID SHEPARDSON: Right.

That car is about, you know, the image of the company. I mean, look what Toyota got out of the Toyota Prius. They only sold about a million Priuses worldwide in 10 years. That's only 100,000 vehicles a year.

But what they did is, it improved the image of the company. I mean, and it -- when you thought Toyota, you thought green and environmental. The Chevy Volt has the capability to do the exact same thing, to really turn people's image around of the company, because GM, remember, had the electric car before Toyota did...

GWEN IFILL: Yes.

DAVID SHEPARDSON: ... and -- and gave up on it.

GWEN IFILL: So, how much of this, this announcement, especially the P.R. potential for this announcement...

DAVID SHEPARDSON: Mm-hmm. Right.

GWEN IFILL: ... as well as these kinds of plans they have in the works, how much does this contribute to a long-term plan for -- for eventual sustainability?

DAVID SHEPARDSON: Right.

Oh, it is huge. I mean, you heard, you know, GM CEO Fritz Henderson say he has a personal commitment to repay this loan. I mean, they know the bailouts are horribly unpopular. You know, people are upset because maybe they were in industries that didn't get a bailout or they're upset at the banks.

And GM really wants to sort of reconnect with taxpayers and say: Look, we understand this was a major investment. We -- you know, we appreciate it. We are not taking this for granted. We know we got a second shot of life and that, without taxpayers, GM would be gone.

So would Chrysler. And this is about saying to the American people: We're going to do what it takes to pay the money back. And we're not going to forget it.

GWEN IFILL: David Shepardson of The Detroit News, thanks so much.

DAVID SHEPARDSON: Thanks, Gwen.