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General Motors Pays Uncle Sam Back 5 Years Ahead of Schedule

General Motors (GM) announced that it has paid back over $6.7 billion in government bail-out money and loans from the US taxpayer. This is five years ahead of the expected schedule and underlines the financial turnaround which has taken place at GM, even though it is still 60% owned by the US taxpayer.

Both GM stockholders and workers must be relieved that the new management put in place after GM exited bankruptcy (the largest bankruptcy case in history), are coming up with plans which are working in fact and not just on paper. GM along with many other car makers shed tens of thousands of jobs and the entire future of the US car manufacturing industry had been put in doubt.
This $6.7 billion loan is only the tip of the iceberg however. GM actually received over $50 billion in bail-out money from the US taxpayer in 2009. The US government expects to recoup this money when GM is once again taken back to the stock markets and is turned into a public company. At this point the stake held by the US taxpayer will be sold in the form of shares on the stock exchanges and it is expected that this will be one of the largest public offerings in history when this occurs.

GM has had to operate with the stigma of being one of four US car makers who had to receive financial help from the US government. The move towards positive cash flow and repaying this debt is a major boost, not only for GM but for the US car market as a whole. It is a positive sign in a car making landscape which has been destroyed and intensely savaged by the recession.
There is more good news too from GM – instead of shedding jobs, the company is actually creating more positions as production levels start to improve. Since coming out of bankruptcy, GM has invested $1.5 billion dollars in new plant and production improvements which has created 7,500 jobs in the US and Canada operations. $257 million is being invested in Kansas City alone, to build the next Chevrolet Malibu sedans.

The effect of improving economic conditions is being felt elsewhere aside from GM. GM saw car sales lift in the year to March 2010 by 17%, but Ford who escaped bankruptcy and the stigma of receiving bail out monies rang up an increase in sales of 38%. Ford also managed to deliver a profit for 2009 while GM is still a loss-making operation though this is expected to reverse shortly.
Nevertheless, the payback is good news for GM and the industry. GM CEO and Chairman, Edward Whitacre underlined the new attitude sweeping the company by flying to Washington DC on a charter flight – paid for with his own money. This sharply contrasts with the approach of the chief executives who flew into the Capitol with their begging bowls asking for bailout funding but flying on expensive corporate jets costing a fortune when their companies were almost defunct. Many observers are comparing GM’s repayment in the same light as Lee Iacocca’s million dollar US government loan to then ailing Chrysler in the 1980’s – hopefully time will show that GM and the rest of the car industry are in good enough shape to return to profitability and to repaying their debts to society.

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