General Motors Announces Q3 Results, Speedy Loan Repayment

November 16, 2009

It's been a busy day for General Motors CEO Fritz Henderson. Not only did he reveal GM's third quarter financials, but he also announced the company's souped-up plan to repay $6.7 billion in loans from the U.S. government. While the financial report was reasonably upbeat (the company ended Q3 $1.2 billion in the red, but that's an improvement on analysts' $2.5 billion loss estimate), the real attention-grabber was GM's aggressive loan repayment plan: the company will now cough up $1 billion at the close of each quarter, beginning in December 2009. At that rate, GM's debt should be fully erased by July 2011 -- far ahead of the 2015 date agreed upon with the U.S. Treasury.

Of course, that won't put GM in the clear -- not by a long shot. In total, General Motors took about $50 billion from the feds. Of that sum, $6.7 billion remains on the books as debt; the other $43.3 billion has been converted into the federal government's 61% stake in GM, and the feds hope to recoup that cash via stock sales when the company goes public down the line. (Whether the government's stake will ever be worth $43.3 billion is a matter for debate, although many on the auto industry task force would like to see $19 billion that GM received prior to bankruptcy written off, reducing the recoupable amount to $22.3 billion.)

In other words, repayment of the $6.7 billion debt won't have any effect on the federal government's role in General Motors operations -- something that GM desperately wants to eliminate. Although the feds have stated time and again that they don't want to be in the auto business, they have put some "big picture" items and restrictions in place, like the cap on executives salaries that chairman Ed Whitaker bemoaned last week.

What repayment will do, however, is improve GM's brand among the general public. As we've often discussed here at TCC, American consumers have been very critical of both GM and Chrysler for taking bailout dough, and that's seriously affected the two companies' sales. (By contrast, Ford is enjoying a surge of popularity, thanks in no small part to the fact that it avoided bankruptcy.) We're happy to see GM being proactive in its debt management, but as they say in the South, the company still has a long road to hoe.

[Freep]

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