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In a bit of corporate strategy that would make Bernie Madoff blush, General Motors plans to use bailout money to pay back the $6.7 billion loan it has from the government.The rest of the $50 billion flushed into General Motors has been converted into equity, meaning it does not have to be paid back. The Wall Street Journal reports (subscription required) that "GM still has $13.4 billion in an escrow account that came from its U.S. bailout, or twice the amount it needs to pay the government back. While repaying the loan promises to further bolster the health of the company's balance sheet, it also locks up cash that could be used to fund operations if the U.S. economy continues to slump, or if GM cannot arrest a severe decline in its sales and market share."
In summary, this appears to be GM's strategy for emerging as a viable company: Borrow money from the government, convert most of it into equity, then use some of the cash to pay off the part that wasn't converted into equity -- and declare victory. Then, for the win, increase your sales by lobbying the government that already bailed you out into paying people to buy new cars, watering down the initial environmental motive behind "Cash For Clunkers."
Last week, GM chairman Edwin E. Whitacre Jr. commented that "There is a sense of urgency at GM to repay the money we owe as soon as possible."
Is that "sense of urgency" motivated by business interests or good PR? Hopefully the media will beat the drum on the idiocy of using bailout money to repay bailout money.
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Reader Comments (Page 1 of 1)
11-16-2009 @ 8:52AM
RLG said...
How the hell does anybody else pay off a debt? Also, there is interest on the debt; does that not count?
Zacky boy, you need to leave your dorm room and get out in the real world for once.