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Payback Time
According to "a source familiar with the matter," General Motors is planning to pay off its government loan earlier than expected:
The nation's largest automaker plans to pay $1 billion per quarter until the $6.7 billion loan is repaid, according to a source familiar with the matter.
...."This is a result of the company performing modestly above expectations," said the source, who spoke on the condition of anonymity to discuss the situation. "Obviously, the company has a long way to go and a lot of important things to execute on."
....The $6.7 billion debt is not due to be repaid until July 2015, but the company has exceeded projections, partly by going through bankruptcy more rapidly than it thought it would, and partly by cutting costs.
Am I the only one who thinks this is dumb? Is GM really that convinced that it's out of the woods and won't be running short of cash anytime in the next few years? Why? Has the business cycle suddenly been repealed without anyone telling me? Are customers suddenly swooning over GM cars? What's going on?
Probably is dumb, but they
Probably is dumb, but they are signaling that they are healthy and in good position to make and sell cars and that you as the buyer won't have to worry about them going tits up.
I tend to agree, more smoke
I tend to agree, more smoke and mirrors. Extend and pretend. The stock market is being goosed to keep pension funds solvent and bonuses rolling out to people who should be behind bars. The lack of jobs is going to kill this recovery in the long run.
A billion here....
C'mon, it's only a billion per quarter, and since it's a voluntary acceleration they could suspend for a quarter or two with major blows to corporate face but probably only marginal risk to their already embarrassing share price.
it is a smart move when they need so badly to reassure american consumers that they are here to stay and to convince other governments and consumers that gm's foreign subsidiaries are not about to go under.
it's also a reflection of the too-generous approach the Admin took with dispensing bailout funds. they will never admit it, but they panicked. wish that same panic would have somehow driven them much further along the path of reforming the financial industry.
but, i remind myself, we had only an election, not a revolution. it's still the same old boy system operating down there in DC.
May also have something to
May also have something to do with the scrutiny that's being applied to executive compensation in companies that owe the government money.
Beyond executive compensation
Which seems unlikely to be the problem for GM that it is for banks (and to be precise, it is not executives per se, but the deal-makers and traders that get the mad money), the hurried paybacks signal clearly that Government involvement is strongly perceived as a net negative.
Having myself been involved in investment activities that were conjoint with US and UK governments, I can certainly sympathise as no matter the best intentions, bureaucrats approaches to business problems are rarely well-aligned with good business sense.
Of course, that is not to excuse executive error as well. Both are present.
GM Payback
Unless I'm missing something, the speed of the pay back probably has more to do with Administration limits on executive compensation than anything else.
"By MARTIN CRUTSINGER and STEVENSON JACOBS, AP Economics Writer – Thu Oct 22, 7:46 pm ET
WASHINGTON – The government zeroed in on corporate excess and recklessness Thursday with deep, unprecedented cuts in executive compensation at companies living on taxpayer money and a move to wield veto power over pay policy at thousands of banks to limit risk-taking.
The Treasury Department ordered seven big companies that haven't repaid their government bailout money to cut their top executives' average total compensation — salary and bonuses — in half, starting in November. Under the plan, cash salaries for the top 25 highest-paid executives will be limited in most cases to $500,000 and, in most cases, perks will be capped at $25,000."
public offering
I think it is dumb, too. Why payback when you've essentially got free money to invest in your R&D and plant infrastructure? Is this really the best return on investment?
On the other hand, maybe Lounsbury is correct, and management just wants to get the govt off of its back (although they are far, far, far away from that).
My sense is that this move is related to one thing and that is is the plan for a public offering in late 2010 and an effort to generate positive optics for this offering.
Mostly marketing.
American consumers may not buy cars from Government Motors, they are saying we are not Government Motors. The improved consumer optics may do more for their bottom line than the increased borrowing cost (of having to get the funds from private sources). And of course they get government off their back as part of the bargain.
But doesn't the government
But doesn't the government still own 60% of General Motors? Is ownership by the government easier to gloss over than borrowing money from it?
it's about Opel
Far more significant is that GM will not sell Opel as originally planned, Opel has the technology GM needs to revive.
And that's another reason that GM paid back the U.S. some money back early. They had to explain to Germany, which is very upset that GM reversed its decision to sell Opel, that they didn't need the cash. Paying the U.S. is a signal to Germany that GM is much healthier now than projected.