You Call That Repayment, GM?

GM is running TV ads claiming that they have repaid their government TARP loan of $8 billion and change early. Eight billion? The taxpayers invested $80 billion of TARP money into GM and Chrysler, most of that to GM. How does $8 billion pay that off? It doesn’t. What it bought us is 61% ownership in the new GM and a block of stock for the UAW. Previous shareholders and bondholders got virtually nothing.

So what is that stock worth? General Motors recently reported a LOSS of over $4 billion dollars, not a great return on the tens of billions of dollars taxpayers “invested” in the car companies (not voluntarily of course–no sane private investor would have invested in them which is why the government had to). With profits like this, the share price will surely fail to rise to the historically high levels needed to insure a return of taxpayer money.

The problem could get even worse over the long term. The GAO has reported that the auto industry pension funds (for 900,000 workers) are underfunded by $17 billion. Payments of about $15 billion have to be made in the next few years to the pension funds. Let’s just say it will be hard to make these payments with no earnings. The company continues to liquidate itself, but now they are losing taxpayer money. The government’s clear preference for unions in all these dealings suggests that more taxpayer money will ride to the rescue in the years to come.

If the company was doing something of value (to us) and doing it well (making money), we might be happy to see the debts being repaid out of earnings. But that’s not happening and may never happen.