GM pays back government loans from US, Canada
CEO Ed Whitacre announced the repayments Wednesday at GM’s Fairfax Assembly Plant in Kansas City, Kan., where he said GM is investing $257 million in that factory and the Detroit-Hamtramck plant. He was to meet with top lawmakers in Washington on Wednesday afternoon.
The White House pointed to GM’s repayment of the loan and Chrysler LLC’s posting of an operating profit in the first quarter of 2010 as concrete signs that the bailout of the U.S. automakers was working.
In a report, the Obama administration noted the American auto industry lost more than 400,000 jobs in 2008 and analysts estimated another 1 million would have been lost had GM and Chrysler been liquidated. In the past nine months, the White House said automakers have added 45,000 jobs, the industry’s strongest job growth in nearly a decade.
“This turnaround wasn’t an accident of history,” White House economic adviser Larry Summers said in a blog posting.
GM got a total of $52 billion from the U.S. government and $9.5 billion from the Canadian and Ontario governments as it went through bankruptcy protection last year. At first the entire amount of U.S. aid was considered a loan as the government tried to keep GM from going under and pulling the fragile economy into a depression.
But during bankruptcy, the U.S. government reduced the loan portion to $6.7 billion and converted the rest to company stock, while the Canadian government held $1.4 billion in loans. Those loans were repaid Tuesday, five years ahead of schedule.
The automaker hopes to begin repaying the remaining $45.3 billion to the U.S. government and $8.1 billion to Canada via a public stock offering, perhaps later this year. The U.S. government now owns 61 percent of the company and Canada owns roughly 12 percent.
“Nobody was happy that GM needed government loans – not the governments, not the taxpayers and, quite frankly, not the company,” Whitacre wrote in an op-ed article that appeared on The Wall Street Journal’s Web site Tuesday night. “We believe we can best thank the citizens of the U.S. and Canada by making sure that their investments are hard at work everyday, building high quality, fuel-efficient vehicles.”
The quality of U.S. vehicles got a surprising vote of confidence in a new poll. An Associated Press-GfK survey finds that slightly more Americans now say the U.S. makes better-quality vehicles than Asia, with 38 percent saying U.S. cars are best and 33 percent preferring autos made by Asian companies.
In a December 2006 AP-AOL poll, 46 percent said Asian countries made superior cars, while just 29 percent preferred American vehicles, reflecting a perception of U.S. automotive inferiority that began taking hold about three decades ago.
GM’s investments in the Kansas and Michigan factories will not create any new jobs, but will preserve jobs at both plants. Both will build the next generation of the popular midsize Chevrolet Malibu.
The Kansas plant, which employs 3,869 workers, also builds the midsize Buick LaCrosse luxury sedan. The Detroit-Hamtramck plant, which has 1,048 employees, now builds the Cadillac DTS and Buick Lucerne large sedans and is gearing up to make the Chevrolet Volt rechargeable electric car.
During the financial crisis that led to GM filing for bankruptcy protection last year, the automaker closed 14 factories and shed more than 65,000 blue-collar jobs in the U.S. through buyouts, early retirement offers and layoffs. The company now employs about 40,000 hourly workers in the U.S.
Even the preservation of jobs is good news for a nation with an unemployment rate close to 10 percent.
Employers nationwide in March added 162,000 jobs, the most in three years. But the pace of the economic recovery and job creation won’t be robust enough to quickly drive down the unemployment rate. It’s been stuck at 9.7 percent for three months, close to its highest levels since the 1980s.
GM had made about $2 billion in loan payments to the U.S. government and $384 million to Canada in December and March, and had promised to repay the full loans by June. But company officials said sales of newer models have improved GM’s cash flow and allowed it to make the remaining $5.8 billion in payments early.
U.S. Treasury Secretary Timothy Geithner said in a statement that he’s confident GM is on a path toward viability.
“This continued progress is a positive sign for our auto investment – not only more funds recovered for the taxpayer, but also countless jobs saved and the successful stabilization of a vital industry for our country,” he said in a statement.
The Treasury Department said total repayments under the Troubled Asset Relief Program, or TARP, now stand at $186 billion, with less than $200 billion in bailout money outstanding.
The government still has $2.1 billion worth of GM preferred stock, plus its 61 percent share of common equity, the statement said.
GM officials say the company’s public stock offering will take place when the markets and the company are ready. They will not predict how much of the remaining government debt will be repaid from the stock offering, but said it likely will take years for the governments to divest themselves fully.
The stock offering hinges on GM posting a profit, which Whitacre has said could come this year. GM lost $3.4 billion in the fourth quarter of 2009 on revenues of $32.3 billion.