By on April 23, 2010

While the White House and most of the media spent the last two days parroting GM’s claim that it “paid back” taxpayers, Senator Chuck Grassley was busy writing a letter to the Secretary of the Treasury [letter available in PDF here]. The three-page note opens:

Dear Secretary Geithner:

General Motors (GM) yesterday announced that it repaid its TARP loans. I am concerned, however, that this announcement is not what it seems. In fact, it appears to be
nothing more than an elaborate TARP money shuffle.

No surprises there: TTAC has been all over this ruse for months now. Grassley does sum the situation up nicely, stating that “A debt-for-equity swap is not a repayment,” but the most interesting part of his letter is his theory for why GM and the Administration approved the tax-money reshuffle. Thus far, we’ve assumed that PR was the driving concern in this transparent deception. According to Grassley though, there may be another reason…

Grassley’s theory: GM and the Administration shuffled the money back to taxpayers in order to help the automaker avoid President Obama’s Financial Crisis Responsibility Fee, also known as “The TARP Tax.” He explains:

I am also troubled by the timing of this latest maneuver.  According to Mr. [TARP Special Inspector General Neil] Barofsky, Treasury had supervisory authority over GM’s use of these TARP escrow funds.  Since GM’s exit from bankruptcy court, Treasury had approved the use of the escrow funds for costs such as GM’s obligations to its parts supplier Delphi. According to the GM 8K, GM had planned to use the TARP funds in escrow to pay back the TARP loans on a quarterly basis beginning in the fourth quarter of 2009.  But following the April 20, 2010, hearing of the Senate Finance Committee, where Treasury’s decision to exempt GM from the bank TARP excise tax was questioned and GM’s refusal to testify was noted, it is odd that GM suddenly drew down on the TARP escrow and accelerated the repayment of the remaining balance of GM’s outstanding TARP loans.

The bottom line seems to be that the TARP loans were “repaid” with other TARP funds in a Treasury escrow account.  The TARP loans were not repaid from money GM is earning selling cars, as GM and the Administration have claimed in their speeches, press releases and television commercials. When these criticisms were put to GM’s Vice Chairman Stephen Girsky in a television interview yesterday, he admitted that the criticisms were valid:

Question:    Are you just paying the government back with government money?

Mr. Girsky: Well listen, that is in effect true, but a year ago nobody thought we’d be able to pay this back.

Mr. Girsky then said that GM originally planned to pay the loan over the next five years.  So the question is why—other than a desire to justify excluding GM from the administration’s TARP tax proposal—would Treasury and GM reduce GM’s TARP debt with TARP equity and then mischaracterize it as a repayment from earnings?

Why indeed? As Grassley points out, GM did decline to appear at TARP Tax hearings, which was convenient, considering it and Chrysler are likely to account for most of the TARP program’s losses. With a number of questions about the TARP Tax looming and more hearings planned, it’s not inconceivable that Grassley’s theories will pressure Treasury to explain its approval of GM’s white lie.

But more important than any game of Potomac Gotcha is the glimpse at GM and Chrysler’s future that this controversy presents. Americans actually seem to care whether bailed-out automakers really pay them back or just pretend to. With Chrysler literally unable to ever make the taxpayer’s whole, how can that company ever project an image of success to the public? With a GM IPO unlikely to generate the huge sums needed to square up with Treasury, how can The General plan for a future of growth on the basis of this flimsy deception? The Department of the Treasury may rubber stamp GM’s creative accounting, but it won’t be buying the cars that will create a real turnaround for the automaker. That’s up to the American people, and as a group, they’re not overly fond of spending their hard-earned at companies that owe them money. As companies in an industry that is deeply dependent on consumer sympathy, GM and Chrysler simply can not afford to be seen as trying to weasel out of commitments. They should be embracing, not evading a framework for long-term repayment.

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18 Comments on “Grassley: Was GM’s “Payback” Shuffle About Avoiding The TARP Tax?...”


  • avatar
    Conslaw

    Actually, GM won’t account for the most TARP losses. It looks like that honor will go to AIG. But wait – are we counting GMAC?

    Even if GM used federal funds to pay off federal funds, that’s fine as long as GM still has enough working capital to execute its business plan. If GM starts doing stupid stuff because it doesn’t have enough working capital, then paying back the money was not a good idea.

    • 0 avatar
      musiccitymafia

      To summarize, GM may have come to the realization that the gov’ment gave it access to more money than it needs. They will keep access to funds with the least strings attached and have declared they don’t need access to that with more strings (be it TARP tax or whatever). Sounds prudent on the surface. Shuffle away.

      WRT product development, GM went Chapter 11. While this isn’t Chapter 7 it is still bankrupt. Deep down inside I’m not comfortable with some of the new products GM has developed … too “rich” and too flashy. I admire Chrysler for the K-Cars they developed to pull them away from the brink many years ago. These cheap cars that people loved seemed to match their financial predicament. GM still seems to be in denial. That their major stockholder threw more money at them than they could use was not going to right the ship. Pulling some of it back is starting down the right path.

  • avatar
    tced2

    The folks in the District of Control waste more time designating various monies, hard, soft, TARP, non–TARP, taxable, not-taxable to enforce their regulations. Or take the “highway trust fund” or “Social Security trust fund. Well I don’t “trust” them so the idea of a “trust fund” is a waste of time. The District of Control has spent the “trust funds” – the money isn’t there.
    As Conslaw says, as long as GM has money to operate then let them pay the loans back by whatever money they have in their control.
    Wake up Senator Grassley: GM is 61% owned by the federal government. A government owned enterprise(?) is avoiding taxes — paid to the government? Maybe the White House is avoiding property taxes owed to the District of Columbia. Or how about the property taxes on the Washington Monument?

  • avatar
    pgcooldad

    “With Chrysler literally unable to ever make the taxpayer’s whole, how can that company ever project an image of success to the public?”

    Of course the Old Chrysler will be unable to pay back any money – Old Chrysler, or OldCarCo, filled for bankruptcy under the ownership of Cerberus and Damnliar … government should go after them.

    The new Chrysler Group led by Fiat’s Management is doing a lot better:

    http://www.thetruthaboutcars.com/un-miracolo-dellevoluzione-chrysler-posts-a-profit/#comment-1617303

    During his presentation of Fiat Group’s 5-year business plan, Sergio Marchionne, who is also CEO of Chrysler Group LLC, lashed out at critics who say his companies are not addressing the flaws of their business. Marchionne called critics “fundamentally offensive,” “based on absolute hogwash” and “wholly unjustified.”

    As for GM; I wish they would stop the shenanigans, and call it a return of money rather than a repayment.

    • 0 avatar
      Polishdon

      You beat me to the punch !

      When a company files bankruptcy (Not just GM & Chrysler), the lenders rarely get all of their money back. If you are luckly, it’s like $.10 on the dollar. So the US government KNEW it would not receive the funds back.

      It’s probably banking on the economy to pick up and to try and recover the funds from taxing income of these operations.

      Again, negative bias ! Chrysler Group LLC and OldCarCo are NOT the same company.

      GM’s ploy, on the other hand is blatant ! It didn’t pay it off, it just transfered the balance from one to another, like transferring the balance from one credit card to another.

  • avatar
    rnc

    It would be nice to know what State and party affiliation the good senator has (I’m willing to bet if he was from Michigan and a D and had said something positive it would have been noted in CAPS), but other than that it was done for marketing purposes, GM isn’t a bank, its former finance division (which is now a bank) isn’t exempt from the tax.

  • avatar
    bmoredlj

    I’m really disappointed in GM and Ed Whitacre in particular for this obvious and frankly pathetic PR ploy. One would think the man would have more sense that to repeatedly mislead the American public by taking one crafty technical financial procedure and branding it as full repayment. As a shareholder in GM, I’m placing a vote of no confidence in his leadership. This “payback” malarkey is a indelible stain on his judgment as CEO.

    • 0 avatar
      Zasdoogy

      I hate to say this, because it goes into some personal financial matters, but I have to speak up and say something:

      My father owns ~100,000 shares of GM. No small amount by any means, but nothing really huge either. When GM took a dump last year, he saw the rest of his retirement years and his grand-daughters college fund completely implode. I had advised him back in 2005 when the stock was yielding 8.9% and the writing was on the wall to bail. He decide to HOLD ON TO IT and hoped that it would do what it had in the past: bounce back.

      5 years later, he’s sitting on virtually worthless paper (yes, he owns actual GM notes) and he’s wondering why he didn’t listen to me when I told him to sell. That being said, Life goes on…

      I didn’t come on TTAC to GM Bash, I came on because I found people (some) that are actually level-headed and knowledgeable about the automotive industry who are passionate about being car owners. Granted, there are a few nutcases out there whose opinions vary from “Screw Ford and GM” to “Screw Toyota and Honda”, but overall, this place is fun to be reading when there’s a lull here in the office.

      The bottom line to this recent round of PR from GM/Feds, is that they want the American Public, JOHN Q PUBLIC, to feel good that GM is “getting back on it’s feet”. The problem though, is that the players on the trading floor in the financial sector UNDERSTAND more of this “shuffling” than the average layman, and if THEY aren’t confident in GM’s upcoming IPO, who is? I’m sure NO financial advisor will tell their client to buy into a company that may be headed for a complete meltdown, that would be complete and utter professional suicide. I know that my broker is telling me to STAY AWAY from the GM IPO that’s impending, and that until ALL of the loans are paid off, GM is like a radioactive hot-potato that no one wants to touch.

      One last thing. my father, after yesterdays announcement and a phone call to his broker, basically said he’s going to start using the GM notes to wipe his ass, because as expensive as toilet-paper has gotten, the GM notes, at their current value, is cheaper than buying TP at Walmart. LOL! Oh what to do now…

    • 0 avatar
      The Walking Eye

      Given the echo chamber that exists within our media outlets and what I see online in chats/blogs/whathaveyou, the American people as a whole are not willing to discover the truth and will blindly accept what is told to them by their favorite radio/tv hosts. One trick that’s used is to repeat the same phrase over and over until it resonates as truth, regardless of the actual facts and whether or not the sayings can be shown demonstrably false. Just look at Snopes and all the crap people believe simply because they saw it in an email or online somewhere.

      I think PR people are savvy enough and upper management skeevy enough to know this and exploit it. They cannot possibly really believe that they have repaid the loans in the manner in which they’re implying.

    • 0 avatar
      psarhjinian

      One trick that’s used is to repeat the same phrase over and over until it resonates as truth, regardless of the actual facts and whether or not the sayings can be shown demonstrably false

      Another favourite one is to hammer on just the idea that there’s a controversy and disagreement, rather than talk about facts themselves. It’s a great way to give credence to the incredulous.

      You can get surprising mileage out of “truthiness” and repetition.

    • 0 avatar
      Robert.Walter

      “One trick that’s used is to repeat the same phrase over and over until it resonates as truth, regardless of the actual facts and whether or not the sayings can be shown demonstrably false.”

      This method is what is known as “The Big Lie”; of which Hitler was arguably the most famous practicioner…

      (And no, I did not invoke Godwin’s Law because the reference is historically relevant.)

  • avatar
    Rusted Source

    I love that picture. He’d make a good Grim Reaper.

  • avatar
    NativeConservative

    I went to the dealership this morning to get my oil changed and there was a big sign hung on the front: “We Paid Our Government Loan Back In Full With Interest.” I don’t snort, but I did. Many people aren’t buying Chevy’s because they’re ‘government owned’ and they don’t want to contribute to spiral into socialism. GM has a bad image, Chrysler has a bad image – the Government didn’t help them by slamming Toyota while owning GM and Chrysler. I don’t know about the timing of this payback or if federal dollars were printed to pay the government back — does it matter? This regime will turn around and send those funds to another business it thinks it can run [into the ground] better and give it to its Union bosses. Does anyone truly believe the government no longer ‘owns’ GM because it paid back this very ‘small portion’ of the loan?

  • avatar

    Gov’t Motors is banking on American stupidity to make its case for full “repayment” of the loans. Alas, that’s probably a sound investment on GM’s part… its first in recent memory…

    Grassley speaks the truth here, but it will all be lost to claims of partisanship. Whether that’s right or wrong, either way the American public will continue to be taken for a ride over this “too big to fail” nonsense.

  • avatar
    undrgnd40

    yet another good reason why i am ashamed of corporate america.

  • avatar
    Odomeater

    Dear Richard,

    We are proud to announce we have repaid our government loan – in full, with interest, five years ahead of the original schedule. We realize we still have more to do. Our goal is to exceed every expectation you’ve set for us. We’re designing, building and selling the best cars and trucks in the world. Like the award-winning Chevy Malibu, the all-new Buick LaCrosse, the versatile Cadillac CTS Sport Wagon and the innovative GMC Terrain, just to name a few. We invite you to learn more about the new GM and join our community, by visiting gm.com.

    Susan E. Docherty
    Vice President, U.S. Marketing


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