Our auto company GM is “repaying” some of the bailout money early! Or so say the headlines.
But the reality is a little bit different.
Some background, in case you don’t remember all the payments you made to own 61% of GM. The government placed $6.7 billion in a “contingency fund” in case things got worse for the auto maker. Things seem like they aren’t getting worse, so GM will not need the money. As the Washington Post’s “Economy Watch” analyst Frank Ahrens notes:
GM actually said it is going to start giving back $6.7 billion the government placed in an escrow account for the automaker as a contingency, in case things got worse.
That’s part of the $52 billion the government has plowed into GM, which went through a government-backed bankruptcy earlier this year.
Well, things didn’t get worse — so GM said it could start “repaying” the $6.7 billion contingency fund with a $1.2 billion “payment” in December, and add additional “payments” until the total amount is “paid off” over the next eight quarters.
It is still good news. Our Uncle Sam and his Canadian cousins loaned the money with the provision that repayment be by July, 2015. So not using the money earlier is better than not using it later.
The news headlines will still read “repayment!” because the neat little accounting trick is hidden far down on the “Non-GAAP Managerial Results” press release today:
GM plans to repay the United States, Canadian and Ontario government loans in quarterly installments from escrowed funds, beginning next month with an initial $1.2 billion payment to be made in December ($1.0 billion to the UST [US Treasury] and $192 million to the EDC [Export Development Canada]), followed by quarterly payments. Any escrowed funds available as of June 30, 2010 would be used to repay the UST and EDC loans unless the escrowed funds were extended one year by the UST. Any balance of funds would be released to GM after the repayment of the UST and EDC loans.
I’m glad our new car company is so clever. They would make Frank Abagnale, Jr. smile.
Cross-posted to FrankHagan.com