Did GM really repay its TARP loan?


Answer: It is true that, as far as accounting books are concerned, New GM paid off its government loans through a series of payments from July 10th 2009 through April 4, 2010 [1]. BUT…

Notice: The money discussed in this issue is denominated in U.S. dollars($ or $USD), Canadian dollars ($C), or a combination of the two, which explains the discrepancies in the various figures that are quoted.

What is a short history of the GM bailout?

On December 19, 2008, President George W. Bush used executive authority to permit the reallocation of TARP funds to support the auto industry during the financial crisis. The initial 3-year loan promised to GM was to be $9.4 billion, with the stipulation that it had to be repaid within 30 days if the company could not prove itself to be viable by March 31, 2009. [2]

On December 29, 2008, Treasury committed to lend up to $1 billion to GM for it to use in purchasing shares in GMAC, $884,024,131 of which was used; this transaction is why Treasury now holds 35.4% of GMAC common equity. On December 31, 2008, Treasury committed to provide $13.4 billion of TARP funds ($4 billion on December 31, 2008; $5.4 billion on January 21, 2009; $4 billion on February 17, 2009) as a loan on the terms set forth by the Bush administration, secured with equity warrants as collateral. [3][4][5][6]

The TARP money came with strings attached, one of which was a limit on executive pay and compensation. On February 4, 2009, President Barack Obama set a $500,000 limit on executive pay (not retroactive), and on February 5, 2009 the U.S. Senate banned bonuses to the 25 highest-paid employees and banned luxury expenditures (e.g. private jets), among other limits, at companies receiving TARP money [7]. Even so, the U.S. continued to pour another $2 billion on April 22, 2009 and $4 billion on May 20, 2009 into GM, each time amending the initial loan terms to increase the amount [6][8].

What is ‘New GM’?

On June 1, 2009, even with $19.4 billion in Federal aid, GM filed for Chapter 11 bankruptcy with $172.81 billion in debts and only $82.29 billion in assets as the 4th largest bankruptcy in U.S. history [9]. (try to not let your head pop at this point) The U.S. Federal government then loaned New GM an additional $30.1 billion on June 3rd. On July 10, 2009, The U.S. Treasury then converted its $19.4 billion of pre-bankruptcy loans and $22,041,706,310 of the post-bankruptcy loan into $2.1 billion of preferred stock and 60.8% of common equity interest/ownership in New GM, leaving $7,072,488,605 as a pure loan to New GM at 7% interest through 2015. The Canadian and Ontario governments then loaned New GM a total of $1.4 billion to New GM and purchased an 11.7% common equity stake in the reformed company for an additional $8.1 billion as part of the post-bankruptcy re-launch. [1][8][10][11][12]

GM’s cash from the U.S. federal government was held in an escrow account by the U.S. Treasury. To use the funds, GM must petition the Treasury and apply for the release of funds – that is Treasury reserved the power to approve or disapprove GM’s use of the funds in the escrow account. The funds were originally designated for necessary expenses. The remaining funds still reside in the escrow account. [13]

On April 21, 2010, GM announced that it had repaid the loan portion of U.S. and Canadian government investments [10] and tried to make this point very public, including a video advertisement [14]. The same day, the White House, through the Executive Office of the President, wrote that “GM’s early repayment of its $6.7 billion loan leaves the remaining U.S. government stake in the company at $2.1 billion in preferred stock and 60.8% of the common equity. GM is repaying early to help accelerate its planning process for an IPO, which will be the next milestone in the government exiting its investment in GM.” [15]

Was there “an elaborate TARP money shuffle”?

No. At least I would hardly call using cash earning next to nothing in an escrow account to pay off a 7% interest loan ‘elaborate’. Also, after the government’s conversion of the TARP loans into equity interest, the cash was permanently GM’s and no longer TARP funds, so GM was using its own cash, not more TARP money, to pay off the remaining TARP loan amount.

Why are people upset and claiming GM did not actually repay taxpayers?

1) GM still has an outstanding loan of $2.5 billion from its UAW labor union at 9% interest through 2017 which it has declined to pay off yet [13]. This is 2% higher interest for two more years than the government loans at 7% through 2015. This decision is bad for shareholders and the U.S. and Canadian governments are the primary shareholders owning 72.5% of the company, thus this decision is bad for U.S. and Canadian citizens. The taxpaying public is not happy about this.
2) GM and New GM have received TARP cash funds far in excess of the loan which was just repaid. From its creation until the end of the year (July 10 – December 31), New GM had global revenues of $57.5 billion generating a net loss of $4.3 billion [16]. However, this is due to cash gains outweighed by accounting losses due to reduced asset value and the UAW retiree medical plan settlement, so GM actually gained $1 billion in cash from its operating activities. Even so, GM requested to use cash from the escrow account, held by the U.S. Treasury who regulates the money’s use, for the loan repayment. Some people see it as unfair that GM used regulated funds (received from the government) instead of unregulated funds (received from sales and operations, or the initial loan from the government) for the loan repayment.
3) GM applied for a $10 billion loan at 5% from the Department of Energy to be used to retools GM’s manufacturing plants to meet the government’s new Corporate Average Fuel Economy  (CAFE) standards [12]. If approved, this would give GM a new, larger loan from the government, at a lower interest rate, and with different strings attached to the money than the TARP funds. Some people see this as an attempt to get more government money, since a $10 billion loan would be more than the $6.7 billion repaid loan, while simultaneously refinancing the old 7% debt to a lower 5% interest rate. Some other people see this as an attempt to avoid the TARP limits on executive compensation.


1) If you have a loan at 9% interest and a loan at 7% interest, which do you pay off first? If you said “the 9% loan”, then you are more financially savvy than GM’s management. Admittedly there are probably internal political reasons for GM to not pay off the UAW loan yet in order to curry favor with the union. However, from a public relations perspective, GM probably should have paid off both loans.
2) If your dad gives you a $20 weekly allowance to buy gas (and ONLY gas) and your mom gives you $20 a week for mowing the lawn, which $20 do you use to buy gas? Deciding to use the restricted money to pay off the loan was a business decision that increased GM’s spending flexibility with its remaining cash funds. However, it was clearly bad PR, especially after the media blitz hyping how “well” GM is doing. The problem is that it looks bad and GM’s management is making business-first decisions rather than fully considering the PR implications of how those decisions might be spun when a significant group of people seems to want GM to fail so as to make the current Democratic administration and the bailout scheme seem unreasonably inept.
3) /*start sarcasm*/ Ah, how wonderful. It is so nice to see our corporate titans of industry setting a good example for the rest of society. /*end sarcasm*/ Like #2, yes it is a good business decision to borrow $10 billion at 5% interest instead of $6.7 billion at 7% interest, and this decision also turned into a PR flop. On the other hand, this is what millions of Americans have done by refinancing their home mortgage or car loan and then applying for a government rebate or tax incentive.
4) The [mostly conservative] commentators are correct that the debt obligation to equity interest conversion and the early payoff of the 7% loan are more in GM’s interest than in the taxpayers interest, but what do you expect the company to do? First, the whole point of government action was not to buy a car company for the public to play with, it was to get GM back on its feet (or at least that is what they said they were doing). As such, although keeping the costs to taxpayers down is important, getting GM working again as a company independent of government life-support is more important. As such, most decisions between taxpayer benefit and GM benefit ought to tilt towards GM’s benefit (unless the goal changes to keeping a government-run national automotive company). Second, if you have a 7% loan of any size and you cannot make more than a risk-adjusted 7% from investing that loan, of course you are going to pay it off! Forcing GM to keep that loan would simply have added yet one more anchor to a still badly listing financial sheet.


[1] : “Troubled Asset Relief Program Transactions Report” see section “Automotive Industry Financing Program” by U.S. Treasury Department Office of Financial Stability, 2010/04/20

[2] : “Bush announces auto rescue” by Chris Isidore, CNNMoney.com, 2008/12/19

[3] : “Fifth Tranche Report to Congress” by United States Department of the Treasury, 2009/02/06

[4] : “Fourth Tranche Report to Congress” by United States Department of the Treasury, 2009/01/07

[5] : “Sixth Tranche Report to Congress” by United States Department of the Treasury, 2009/04/24

[6] : “Eye on the Bailout: General Motors” by Pro Publica, 2010

[7] : “UPDATE 1-U.S. Senate votes to ban executive bonuses” Reporting by Thomas Ferraro and Julie Vorman; Editing by Peter Cooney, Reuters, 2009/02/06

[8] : “Troubled Asset Relief Program Transactions Report” see section “Automotive Industry Financing Program” by U.S. Treasury Department Office of Financial Stability, 2009/07/15

[9] : “Humbled GM files for bankruptcy protection” by msnbc.com, The Associated Press and Reuters contributed to this report, 2009/06/01

[10] : “GM Pays Back Government Loans in Full, Announces Investment in Fairfax, Detroit Hamtramck” by General Motors Company Chairman and CEO Ed Whitacre, GM Media, 2009/04/21

[11] : “Gas In The Tank: GM Repays $8.1B In Gov’t Loans” by The Associated Press, NPR, 2010/04/21

[12] : “Uncommon Sense: Still Government Motors” by Reason Foundation senior analyst Shikha Dalmia, Forbes, 2010/04/23
– http://www.forbes.com/2010/04/23/general-motors-economy-bailout-opinions-columnists-shikha-dalmia_print.html
– http://www.forbes.com/2010/04/23/general-motors-economy-bailout-opinions-columnists-shikha-dalmia.html
– http://www.forbes.com/2010/04/23/general-motors-economy-bailout-opinions-columnists-shikha-dalmia_2.html

[13] : “Facts Behind Claim That GM Repaid Its TARP Loan” by U.S. Senator Chuck Grassley, 2010/04/29

[14] : “GM Repaid Government Loan Ahead of Schedule” by gmblogs, YouTube, 2010/04/20

[15] : “A Look Back at GM, Chrysler and the American Auto Industry” by the Executive Office of the President, 2010/04/21

[16] : “GM Completes Fresh-Start Accounting” by GM Media press release, 2010/04/07

Additional Reading:

“Obama Is Upbeat for G.M.’s Future” by Bill Vlasic and Nick Bunkley, The New York Times, 2009/06/01

“GM Used Bailout to Repay TARP Loans, Senator Says” by Avery Fellow, Courthouse News Service, 2010/04/23

“Reports and Documents” by FinancialStability.gov

“GM TARP Repayment An “Elaborate Money Shuffle” Says Senator” by Peter Fowler, Newsroom America, 2010/04/23

“General Motors Announces the New Company’s July 10-September 30 Preliminary Managerial Results” by GM Media press release, 2009/11/16

“Did General Motors Really Repay Its Taxpayer Bailout?” by Senator “Chuck” Grassley, FOXNews.com Opinion, 2010/04/23

“GM bankruptcy: End of an era” by Chris Isidore, CNNMoney.com, 2009/06/01

“Fair Game: Repaying Taxpayers With Their Own Cash” by Gretchen Morgenson, The New York Times, 2010/04/30

“CEO says GM has repaid government loans in full” by PolitiFact, St. Petersburg Times, 2010/04/21

“Eye on the Bailout” by propublica.org