GM repaying loans with room to spare
Fallen giant General Motors Co. accelerated toward recovery Wednesday, announcing the repayment of $8.1 billion in U.S. and Canadian government loans five years ahead of schedule.
President Barack Obama’s administration crowed about the "turnaround" at GM and fellow bailout recipient Chrysler LLC, saying the government’s unpopular rescue of Detroit’s automakers is paying off.
Much of the improvement comes from GM slashing its debt load and work force as part of its bankruptcy reorganization last year. But the automaker is a long way from regaining its old blue-chip status: It’s still losing money — $3.4 billion in last year’s fourth quarter alone. And while sales are up so far this year, that’s primarily due to lower-profit sales to car rental companies and other fleet buyers.
GM CEO Ed Whitacre, a former telecommunications executive who was tapped to lead the automaker’s revival, announced the loan playback at the company’s Fairfax Assembly Plant in Kansas City, Kan. He also said GM is investing $257 million in that factory and the Detroit-Hamtramck plant in Michigan. No new jobs will be added, but workers at both plants are gaining job security because they will build the next generation of the popular midsize Chevrolet Malibu.
Whitacre said GM was rebuilding through the sale of gas-sipping midsize cars and crossovers and investing more than $1.5 billion in 20 plants since leaving bankruptcy protection, preserving 7,500 jobs.
GM lost $88 billion between 2004, when it last turned a profit, and last year when it declared bankruptcy. It endured years of painful restructuring, closing 14 factories and shedding more than 65,000 blue-collar jobs in the U.S. through buyouts, early retirement offers and layoffs.
GM received $52 billion from the U.S. government and $9.5 billion from the Canadian and Ontario governments starting in 2008. At first the entire amount of U.S. aid was considered a loan as the government tried to keep GM from going under and pulling the fragile economy into a depression.
But during bankruptcy, the U.S. government reduced the loan portion to $6.7 billion and converted the rest to company stock that gave it a 61 percent ownership control. Canadian governments also converted part of their debt to shares, reducing its loan balance to $1.4 billion. The final installments on those loans were repaid Tuesday, comfortably beating a 2015 deadline.
Filed under: economics by Specialist