General Motors Now Admits It Didn’t Repay Bailout Money

| by CEI

By Hans Bader


Contrary to its claims in TV ads earlier this year, General Motors has now admitted that it did not repay its government bailout. In light of this new admission, the Competitive Enterprise Institute today filed a supplemental complaint with the Federal Trade Commission, drawing attention to this new information.

CEI’s original deceptive advertising complaint to the FTC, filed in May, noted that General Motors misleadingly claimed in a national TV ad that the company had paid back taxpayer bailout loans.  On September 16, 2010, General Motors admitted to the media that it did not in fact repay what it received from the government, and that its repayment of its bailout may take years:

It will take a couple of years for taxpayers to get back the billions they spent bailing out General Motors, but the company has a goal of returning the money, GM’s new CEO said Thursday. CEO Daniel Akerson told reporters that the government won’t be repaid with the company’s initial public stock offering, which could happen later this year, but couldn’t answer more specific questions about the sale.

In its original complaint, CEI urged the FTC to investigate the 2010 GM ad campaign entitled “GM Repaid Government Loan Ahead of Schedule.” The ad featured GM’s then-Chairman and CEO, Ed Whitacre declaring that “we have repaid our government loan in full, with interest, five years ahead of the original schedule.”

That claim, CEI explained in the May complaint, “gives the false impression that GM has used its own funds to pay back all the bailout money that it received from the federal government. In fact, GM has only repaid a fraction of those funds—barely ten percent. Moreover, GM apparently repaid its loan by using other federal funds.” Such misleading claims could dupe consumers into having excessive confidence in GM and its products and warranties.  CEI urged the FTC to investigate GM’s advertising claim, to “serve the American public on this issue of major consumer and taxpayer importance [and] “discourage other beneficiaries of government bailouts from falsely misrepresenting their status.”

-- View the CEI Complaint of Deceptive Advertising by General Motors Company

-- View the GM Ad on YouTube

To date, General Motors has “repaid” only $7 billion of the $50 billion it got from taxpayers — and used taxpayer money to make the purported “repayment.”  The only reason GM had enough government money to do that is because of Toyota’s recent safety issues and recalls, which drove car buyers away from Toyota to GM and Ford.  But that turning away from Toyota may only be temporary, now that the Toyota crashes turn out to have been caused by driver error.

In addition to the $50 billion, GM received billions in additional handouts through programs like the incredibly wasteful Cash for Clunkers (which cost taxpayers and used-car and car-parts businesses billions), and $17 billion given to its finance arm, GMAC — which no one expects GM to ever repay.

Ironically, GM would never have needed a bailout if it had just received relief from costly regulations such as CAFE rules (which wipe out at least 50,000 jobs) and dealer-franchise laws. That’s so despite GM’s self-inflicted wounds from mismanagement, excessive union wages and benefits (worth up to $70 an hour), and rigid union work rules.

The Obama administration left those wasteful work rules and excessive benefits largely intact, and gave the United Auto Workers Union (UAW) a big chunk of General Motors’ stock, even though the UAW helped bankrupt the company, and the company has value today only because the federal government pumped billions of taxpayer dollars into the company (and engineered the wiping out of General Motors’ bondholders, some of whom were non-union employees who had invested their life savings in the company).

Veteran political commentator Michael Barone called the Obama administration’s treatment of Chrysler and GM bondholders “gangster government.”  Law professor and bankruptcy expert Todd Zywicki called it an attack on “the rule of law.”

Back in 2008, Zywicki warned that a bailout might prove worse for the auto industry than for automakers to quickly file for bankruptcy without first seeking a bailout. Zywicki noted that by enabling automakers to get rid of expensive union contracts and red tape, a “Chapter 11 bankruptcy filing will likely result in a stronger domestic industry.” It would provide “a mechanism for forcing UAW workers to take further pay cuts, reduce their gold-plated health and retirement benefits, and overcome their cumbersome union work rules.”  Nobel Prize winning economist Gary Becker also argued that a bankruptcy filing would have been better than a bailout in achieving “needed reforms.”

But the federal government ignored their wise advice, and chose to embark an incredibly costly bailout instead. The federal government used money from the $700 billion bank bailout for the auto industry bailout. Legal scholars at the Heritage Foundation, Clinton administration Labor Secretary Robert Reich, and many other commentators have argued that using the bank-bailout money for auto bailouts was illegal.