By Kevin Meyer
I guess we should have suspected it: GM didn't receive just a few billion in bailout funds from the government. It also received some knowledge of funny accounting – accounting only the government is allowed to legally do.
Like many people I saw the ads over the past week touting how GM had paid back, with interest and several years early, the bailout loan from the people of the U.S. and Canada. It sounded a bit fishy to me and apparently others, leading to this piece in The Wall Street Journal.
Is General Motors no longer Government Motors? That's the impression left by the company's announcement this week that is has fully repaid the $6.7 billion in loans it got last year from the U.S. and Canadian governments. The company is "paying back—in full, with interest, years ahead of schedule—loans made to help fund the new GM," declared chairman and CEO Ed Whitacre. That certainly is the truth, but not the whole truth.
So what's the problem? The government… uh… people… didn't just loan the company money, they took it over. Big difference.
But its early loan repayment represents a little more than 10% of the money it got from both governments. Understanding why means peering under the hood of last year's government-sponsored bailout and bankruptcy.
So the U.S. and Canadian governments decided, more or less arbitrarily, to classify some $6.7 billion of its aid as debt and a ballpark estimate of $52 billion in equity. That $52 billion represents nearly 90% of the government money given to General Motors. None of that has been repaid.
Getting the remaining $52 billion back from GM will require an initial public offering, which means convincing the investing public to buy the 73% of the company's stock owned by the U.S. and Canadian governments. (The other 27% is owned by the United Auto Workers union and by bondholders in the old company.)
It won't be easy for an IPO to raise $52 billion for the government shares. That's more than Ford Motor's current market capitalization, some $48 billion. And Ford, the only U.S. car company to avoid bankruptcy, already is profitable, which GM isn't. For GM to show sustained profits means doing business in a new way and breathing new life into long-moribund brands.
So that's where the story was last night – a simple "I forgot about the other $52 billion." This morning it got even more interesting.
General Motors is running ads on all the major networks this week claiming it has repaid its bailout from the taxpayers "in full." But the claim isn't standing up to scrutiny from lawmakers and government watchdogs who have found that the automaker was able to repay the bailout money only by dipping into a separate pot of bailout funds.
Yes, you read that right.
Iowa Sen. Chuck Grassley's charge was backed up by the inspector general for the bailout — also known as the Trouble Asset Relief Program, or TARP. Watchdog Neil Barofsky told Fox News, as well as the Senate Finance Committee, that General Motors used bailout money to pay back the federal government.
"It appears to be nothing more than an elaborate TARP money shuffle," Grassley, the ranking Republican on the Senate Finance Committee, said in a letter Thursday to Treasury Secretary Timothy Geithner.
Barofsky said that while it's "somewhat good news," there's a big catch. "I think the one thing that a lot of people overlook with this is where they got the money to pay back the loan. And it isn't from earnings. … It's actually from another pool of TARP money that they've already received," he said Wednesday. "I don't think we should exaggerate it too much. Remember that the source of this money is just other TARP money."
And who know's about shuffling funds from one account to another to avoid real accounting better than the government? Social Security anyone? Where's Al Gore and his lockbox when you need him?