• Dec 18, 2009
Even though General Motors surprised everyone when it announced it will repay its government loans by next June, a lot of people are still unhappy. What about the other $50 billion we poured into the company, they demand to know?
A lot of politicians and not a few Wall Street analysts say we may as well kiss that money goodbye. We'll never see it again, they promise.

But it's entirely possible, and even likely, that they are very much mistaken. Taxpayers are likely to get a lot of that money back. Indeed, the federal government could come out looking pretty good in this deal, just like it did when it bailed out Chrysler in the early 80s.

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John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
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Back in 1980 the U.S. government provided Chrysler $1.5 billion in collateral so it could go out and borrow more money from the banks. That enabled Chrysler to get back on its feet, and as the car market recovered it started to make money hand over fist. In fact, Chrysler was able to pay back the government seven years early and Uncle Sam ended up making several hundred million dollars in profit on the transaction.

Wall Street became so enamored with Chrysler's recovery that the company's stock zoomed from three dollars a share to $30 in less than three years.

If GM starts posting profits like Ford, there's going to be a lot of interest in GM stock.
While General Motors has a long way to go to get back on its feet, the bankruptcy it went through this year erased almost all of its legacy costs. In fact, GM has slashed so much cost that it's taken several thousand dollars in cost out of every vehicle it makes in North America. Once car sales rise above its breakeven point, the company could become a money machine.

Ford is a good indicator of where GM may be headed. The company posted a nearly $1 billion profit in the third quarter despite the fact the global economy is still flat on its back. Even though Ford did not go through bankruptcy, it too was able to eliminate a lot of its legacy costs. Imagine what could happen in a healthy economy. If the American market increases by a couple of million new cars a year, Ford could be headed towards all-time record profits. And so could General Motors.

Have you seen what's gone on with Ford's stock this year? It has quadrupled in price. The company's market cap is now more than $30 billion, which is still not healthy enough, but is a whole lot better than where it was a year ago.

At some point General Motors will do an IPO and start publicly trading shares again. If GM starts posting the kind of profits that Ford's doing, there's going to be a lot of interest in GM's stock. That's when the federal government can start selling its shares to recoup the rest of the money that it poured into GM.

Don't be surprised if taxpayers find that they not only got back every single penny they ever put into the company, they might even find they turned a profit.

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    • 1 Second Ago
  • 28 Comments
      • 5 Years Ago
      Mr. McElroy,

      Kindly refer to the the last 5 years of GM's earnings:

      2008: -$30 billion
      2007: -$38 billion
      2006: -$2 billion
      2005: -$10 billion
      2004: +$2 billion

      (from http://www.sec.gov/Archives/edgar/data/40730/000119312509045144/d10k.htm#toc75433_10 )

      GM lost $78 billion dollars over the last 5 years. How do expect such an enterprise to pay back $50 billion dollars? Can you provide your arithmetic?

      Thank you.

      • 5 Years Ago
      I'm not sure what kind of math you are using to draw these conclusions. Question: what happened to all of the bad assets and liabilities that the government took off the books during bankruptcy?

      Fact: the government split GM into two companies, "new GM" and "old GM". Old GM is still in bankruptcy and has all of those bad assets and laibilities on it's books.

      Unless the new GM succeeds in turning enough of a profit to allow the government to pay off all of the bad assets it took on through the "old GM" then they will not have fully paid back taxpayers.

      Even if that does happen (not likely), the government will have been guilty of subsidizing risk and picking winners, which is exactly the kind of intervent into the economy that got us all into this mess in the first place.
        • 5 Years Ago
        Then you are of course fundamentally against the idea of bankruptcy and should be mad at everyone, individual or corporate, who has used one.
      • 5 Years Ago
      This is seriously fuzzy math. What about the retirement benefits and pensions that were lost by former employees? What about the suppliers who lost out and/or folded because the government forgave debts? What about the prior shareholders that lost their shirts? GM's debt shouldn't be considered paid until their original obligations, which were "forgiven" by the government bureaucratic machine, have been fully repaid. GM's debt shouldn't be considered paid until the former executives that brought it to its knees are held accountable to even the least of the common shareholders.

      In other words, the government must never, ever bail out such companies again. These companies must manage their resources for long term survival.

      • 5 Years Ago
      His show was boring good for making you fall asleep.
      • 5 Years Ago
      My friends. It is getting to that time when the pitchforks must come out!!! Every now and then a little bit of revolution is healthy! Government has gotten way way too big and bloated. And worst of all, even though, they are voted in by us, they do whatever they want anyway.

      Think aout it. Government is run like a charity. Usually politician's hook up there friend's with jobs and create job posts that aren't even necessary. And these people sit around and do nothing!! Heck, even the politician's are making money in back door *deals*.

      A good friend of mine the other day said something which I didn't realize until now. The Government loves to keep society divided, therefore, they have complete control. The country, despite, what politician's say, has never been more divided than now. Language barrier's, many different culture's in the U.S. has kept the country from coming together for the common good(every race in this country essentially want's the same thing).

      Until American's realize this and rise up consistently against government waste & corruption, things will never get better. The politician's have sold America out, for their own monetary gain, to the foreign countries.

      Lastly, never electe a lawyer to public office! A Lawyer is a liar, and will lie to get into office and will lie all the way through, and will protect their own kind. Many of the reasons why your's and my insurance costs, etc. are soo freakin' high is due to wonderful lawyers. When there is a law firm on every street corner you know something is wrong.
      • 5 Years Ago
      Promoting Detroit (future) shares? I don't believe what I'm reading.
      • 5 Years Ago
      Whether it's never paid back, or the feds make a 100% profit, is immaterial. It is not the federal (or even state) government's place to be supporting or fudnign a private business. Having the power of federal taxation as a backstop for a company's risky behavior got us to this point in the first place. You think any of those banks would have taken the massive risks with mortgage backed securities is Fannie and Freddie weren't buying them all up? All it does is encourag risky, stupid, and lazy behavior. Expose people to the risk of utter failure, and you can be damn sure they will be a lot smarter with their decisions.

      And you know why GM is making a profit and has cut $1,000s from car costs? By screwing over every bondholder and stockholder in the old GM. When you can dump off almost every liability you have, and their associated interest costs, it's amazing how that helps your bottom line.

      I think a successful IPO is a pipe dream. I wouldn't touch it with a 10 foot pole. Maybe 5 years out, when the government's hands in the pie are far in the past, maybe, but the second half of 2010? Right....
      • 5 Years Ago
      "But it's entirely possible, and even likely, that they are very much mistaken. Taxpayers are likely to get a lot of that money back."

      I sure hope so. At the very least, I won't have to listen to those twits parroting the whole "Government Motors" tripe.
        • 5 Years Ago
        doesn't Glenn Hannity come on soon? You might want to tune in and get your latest marching orders...
        • 5 Years Ago
        At first dave. GM did go bankrupt. Despite our insane Government forking over billions they didnt have in the first place
        • 5 Years Ago
        Why do you think paying off the government will change our opinion on GM meaning "Government Motors"? Nothing changes the fact that without the gov't, GM would have gone bankrupt. They couldn't get legitimate loans because no sane investors would risk that kind of money keeping them afloat. When it takes the federal gov't to save your business, you lose any claim on being legitimate.
        • 5 Years Ago
        "When it takes the federal gov't to save your business, you lose any claim on being legitimate."

        Remove the 1.4 trillion dollars of federal spending, and more companies than you can imagine will go under.
        • 5 Years Ago
        @Jim, if you want to go the ad hominem route, then what are you doing on Autoblog.com, shouldn't you be reading MoveOn.org for your liberal memes? When you really think about it, this isn't even a Republican versus Democrat issue, when *both* Bush and Obama made the same mistake of giving bailouts to these companies, after the consumers have voted with their dollars that they should fail. So yeah, all your chanting and ad hominem attacks aside, until GM repays every last cent of bailout money with interest, they remain Government Motors. And I should add, same with Crimesler.
        • 5 Years Ago
        @Jim: Back on Dec 10, 2008, when reports indicated Bush was going to bailout GM and Chrysler, many Autoblog visitors, myself included, voiced our objections. Coincidentally, you were present at the time to witness the objections. When you pretend objectors objected only to Obama's bailout and not Bush's bailout, you are the one whose honesty is in question.

        Source:
        http://www.autoblog.com/2008/12/10/auto-rescue-bailout-bill-ready-to-go-gop-could-still-block-in-s/
        • 5 Years Ago
        "When it takes the federal gov't to save your business, you lose any claim on being legitimate."

        when you dimps only start complaining after a democrat takes office, you lose any claim on being honest.
        • 5 Years Ago
        Yeah, maybe you should research the great depression so you'd know that FDR was the Roosevelt in office, not Teddy!
        • 5 Years Ago
        At 2nd dave
        "Remove the 1.4 trillion dollars of federal spending, and more companies than you can imagine will go under."

        I have not seen any proof of this. In a matter of fact unemployment is ridiculous right not and that doesnt even account for those who gave up searching for a job, just those actively seeking a job.

        Study the great depression when you get a chance. T Roosevelt did the same thing we are going today, expand Government programs and spending. As a result the Depression lasted longer.
      • 5 Years Ago
      I kinda want some Ford stock and some of that GM IPO when it comes out. Get me out of the poor house. Someone explain to me how to buy IPOs and if i'm to poor to play.
      • 5 Years Ago
      I love how everyone jumps on our automakers for accepting government aid when this is the norm in practically every other market. Japan is willing to dump boatloads of assistance into the laps of its automakers in the blink of an eye, and gives them very favorable deals when it comes to their import/export policies. The italian government has propped up lamborghini. Germany has saved it's own automakers from disaster.

      But because of all the centrally-minded herds in this country who can not look to any other country in the world for a half-decent idea (heaven forbid that though we live in an absolutely awesome country, other countries might have some good ideas we should adopt) we have everyone screaming foul play if our government helps it's people and the businesses they run. Isn't that the point of a government? A centralized representation of a country's population designed to handle the daunting task of managing the country's issues and assets while still acting based on the will of the people?

      Eh, the people that hate on "Government Motors" are probably the same people that made fun of anyone buying an import for not buying American. They'll provide the sales that GM needs to pay them back the money the government borrowed from them and then some.
        • 5 Years Ago
        Most of these people dislike the auto companies before the bailout. The bailout just gave them something specific and topical to bitch about at the water cooler and get others to join along.

        The flipside is 5-10 years from now if they're still bitching about it and the auto companies are getting by and paying things back, they'll chase people away instead with their bitching.
      • 5 Years Ago
      Good move by GM.
      • 5 Years Ago
      Could... would, should...

      DO. There is no TRY.

      Until they DO, my opposition still stands, and it will always stand that it isn't constitutional for the government to have done in the first place. Last I checked the enumerated powers of the US Constitution, the LAW OF THE LAND, doesn't allow for the congress to steal from Peter to pay Paul, because Paul screwed up.

      If they have so much money, why the hell didn't they reform themselves before, and save everyone the trouble, and in a controlled fashion without taking a broad battle axe to half of the company, and eliminating several good products in the process, and leaving plenty of boring redundancy in place. The epitome of a crude hatchet job.
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