GMs Road To Recovery, Part 2

Tracking GM’s recovery and calculating how much it is still beholden to the taxpayer -- and for how long this is likely to continue -- is confusing. But here are the important numbers, dates and facts to keep in mind as GM lurches toward an initial public offering of stock, and determines whether Wall Street and Main Street view the automaker as a bankable brand again.

How Much “Bailout” Money Has GM Received?

President Bush approved a bailout plan on December 19, 2008, which would give loans of $17.4 billion to U.S. automakers GM and Chrysler. Bush initially provided $13.4 billion, with another $4 billion available in February 2009. Of that, GM got $9.4 billion and Chrysler $4 billion. GM did not take the second payout scheduled in February.

GM filed for Chapter 11 Bankruptcy on June 1, 2009. The Feds provided $49.5 billion in what is called “Debtor-In-Possession” financing. This was operating capital to allow GM to restructure its operations. Normally, banks provide this financing. But given the fragility of the financial system and the risk of GM not making it, no banks stepped up. The U.S. provided $6.7 billion in loans and took 61% of the company’s equity in exchange for $42.8 billion in cash. The Canadian government gave GM $1.4 billion in loans, and $8.1 billion cash in exchange for 12% of the company’s equity.

So the total General Motors received from the U.S. was $59 billion, including the $9.4 billion before the bankruptcy.

GMAC, GM’S finance company, was given $5 billion in December 2008 and $7.5 billion for working capital in May 2009. At the times of these payouts, GM owned 49% of the finance subsidiary. Today, the unit is out of GM’s hands, and is majority owned by the Feds. GM is not on the hook for the bailout money given to GMAC, now called Ally Financial. The finance company today continues to provide financing to GM and Chrysler dealers and car buyers. GM is now making overtures to reacquire the finance company so it can better control the underwriting of loans to its customers.

Who Actually Owns GM?

After the government’s 61% stake and Canada’s 12% stake come the United Auto Workers union and former GM bondholders. Canada owns 12% of GM, because of the $9.5 billion it kicked in to GM’s reorganization in order to protect thousands of Canadian jobs.

As part of the bankruptcy deal, the UAW’s Voluntary Employee Beneficiary Association Plan (VEBA), which pays healthcare benefits to GM retirees, agreed to forgive $20 billion GM owed the VEBA during GM’s bankruptcy proceedings. The union agreed to accept a 17.5% stake in the new GM, plus $6.5 billion in preferred shares and a $2.5 billion promissory note from the U.S. government. This was a crucial agreement in GM getting through bankruptcy, because GM was drowning in what had become a long-term $60 billion obligation to paying retiree healthcare costs. If the union hadn’t agreed, it could have driven GM into oblivion by striking its factories.

Holders of GM’ corporate bonds were owed $27.2 billion before the bankruptcy. Those bonds were backed by hard assets of GM, such as factories and real estate. In order to get to them to agree to the bankruptcy terms, bondholders received a 10% equity stake, plus so-called stock “warrants” that could eventually give them a 15% stake.

How And Why Did GM Pay Back Its Loans Last Month?

Clearly, GM was trying to write a new story for itself by giving back money it doesn’t think it will need. The idea was to announce that the loans that were part of the bailout were paid back, so as to change the national conversation from “Government Motors” to "GM Charging Back!”

Banks that received TARP (Troubled Asset Relief Program) money enjoyed a change of sentiment after paying back TARP money. And Ford has been benefiting from not having taken bailout money at all. So, GM took money from one government funded bucket of money it had from TARP -- a $13.4 billion escrow account -- and used it to pay back loans, on which it was paying 7% interest, to the government.

It was a wise business move since GM's sales and cash-flow are much better than anticipated. Where the company erred was in running a television commercial with chairman Ed Whitacre saying: “We have repaid our government loan, in full, with interest. Five years ahead of the original schedule." The swagger of the ad, critics contend, gave the misleading impression to consumers/voters that GM had paid the whole bailout back, even though that's not what the ad literally stated.

Fueling the outcry against GM was The Wall Street Journal, which printed a headline above an op-ed article by Whitacre stating: "The GM Bailout: Paid Back in Full." That headline, written by the newspaper and not GM, was incorrect and misleading. GM, nor Whitacre, ever said the bailout was paid back in full, just the loans. But it played to the public as if Whitacre was overreaching in how he described the loan repayment. The ad conveyed the wrong idea, too. It is perhaps not surprising that GM reassigned chief marketing executive Susan Docherty to its Asian operation after this ad debacle.

Did GM Pay Back The Loans So It Could Get Better Terms On New Loans That Will Be Coming From The Department of Energy?

GM has applied for a $10 billion loan from DOE to retool plants and develop greener vehicles. That loan carries an interest rate of 5%, assuming GM gets it. But it would have been politically dicey for DOE to award GM the loan (DOE is making similar loans to Ford and other automakers and parts makers as well) if it still had the outstanding bailout loans.

Why Will GM Issue Stock To The Public?

It wants to trade government and labor ownership for public ownership. There is a stigma to being owned by the government. Besides, the governments, the union and bondholders don’t want to own equity in GM. They want to get the money that is owed to them. In order to do that, a market or GM stock must be created so they have others to sell their stock to.

Stay tuned for tomorrow's third and final part in our series on GM's Road To Recovery.