GM vows to repay $6.7 billion in bailout money by June
GM said Monday that interim CEO Ed Whitacre will stay on permanently, and Whitacre laid out a plan to pay back federal bailout money. Both announcements were viewed as positive signs.
The move to repay $6.7 billion debt by June signals that America's largest carmaker may be turning a corner out of crisis faster than analysts had expected, even though many challenges remain. The selection of Mr. Whitacre, meanwhile, means that the carmaker now has certainty about top management.
"This move tells the troops that Whitacre is the boss, and everybody should put on their helmets and march forward," says Joe Phillippi, president of AutoTrends Consulting in Short Hills, N.J.
"This place needs some stability. I guess that's me," told reporters at GM's headquarters in downtown Detroit.
The Obama administration and some analysts cast the GM moves as positive. Still, Monday's news reflects a mixed picture for the firm and for US taxpayers. The Treasury has dished out nearly $50 billion in aid to keep the automaker from possible liquidation in bankruptcy. Most of that money has been converted into an investment stake in GM, and some industry analysts doubt whether the Treasury will recoup the full amount.
Hard to lure to CEOs
Meanwhile, the GM board's choice of Whitacre – just weeks after launching a search for a new CEO – may hint at the difficulty of luring top talent to a company that remains majority-owned by the government.
It's not that Whitacre is a second-rate choice. His track record in telecom made him one of the nation's star CEOs. But he had planned to be only an interim leader. As with other companies that are recipients of extraordinary bailouts, executive pay at GM is subject to the review and approval of an Obama administration "pay czar," Kenneth Feinberg.
The stepped-up plan to repay debt indicates the priority that Whitacre places on removing the bailout stigma from GM, as the company seeks to rebuild consumer trust of brands such as Cadillac and Chevrolet.
The company has already repaid $1 billion of the $6.7 billion in debt. "We’ve made significant progress in the past couple of months, so much so that I can confirm with certainty that we will pay back in full the US Treasury and Canadian and Ontario government loans by June,” Whitacre said in a statement.
A GM stock offering ahead?
Another milestone could come later this year, if the company moves forward with plans for an initial public offering of stock.
Ron Bloom, a Treasury official who has taken a lead role in the auto industry bailout for GM and Chrysler, said that the government would sell part of its stake in GM at that point. But he said it would be impractical to try to unload its entire stake – currently 60.8 percent of the company's common stock – at that time. The rest of the common stock is currently held by the Canadian government and a trust for labor-union health benefits.
"The future value of the common stock is unknowable," Mr. Bloom said in a telephone briefing for reporters Monday. "Over time it will be what it will be."
GM's debt repayment also comes as the Obama administration has been turning up the heat on other bailout recipients: banks.
Many financial firms have already moved to repay their bailout money. But Obama has proposed that large banks pay a tax designed for the government to recoup "every last dime" of bailout money outstanding.
Some finance experts say the tax should apply to nonfinancial firms like GM as well. But others say automakers would not have plunged toward bankruptcy in the first place had it not been for the crisis that erupted in the finanical industry.
• Wire service material was used in this story.
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