US Government Might Not Recoup Loans To GM

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US Government Might Not Recoup Loans To GM

Post by HotParadox on Wed May 13, 2009 8:31 am

Plenty of Americans didn't want the bailout. Washington didn't want the auto giants to go bankrupt and 'fail'.
Washington spent our money which we didn't have, our money which we will have to pay back, all in the name of saving the auto giants from failing.
But, guess what? Looks like we, the majority of 'stupid' Americans, were right. It seems the auto giants failed anyway, even with big daddy's help, who failed us big time, and now you and I and our kids and their kids are left with the bill.
Nice.

US Government Might Not Recoup Loans To GM - Analysts
Dow Jones
May 06, 2009: 05:44 PM ET

WASHINGTON -(Dow Jones)- Financial analysts are casting doubt on General Motors Corp.'s (GM) ability to repay billions of dollars in U.S. government loans, given the company's debt load and sales outlook.

GM has acknowledged it can't repay the U.S. loans in the original time frame. It is proposing that the Treasury Department accept majority ownership (51%) of the company in exchange for wiping out about $10 billion in debt. Discussions are ongoing.

But even with a large equity stake, the government risks losing at least some of the $15.4 billion it has lent GM since January, analysts said.

It would likely take years of profits and a significant appreciation of the company's value for the government to recoup all of its money, analysts said. That time frame would appear to conflict with the Obama administration's insistence that any government takeover of the company be short-lived.

"Should a GM bankruptcy not proceed as the government wishes, or demand for GM automobiles doesn't rebound, there is an outsized risk that the government could sustain substantial losses," said Joe Brusuelas, a director at Moody's Economy.com. He called the original decision to lend to GM risky given the company's condition.

Aaron Bragman, an automotive analyst with the consulting company IHS Global Insight, said that with a stake in the company, the U.S. government "will be left to wait, and hope that GM can pull out of this nosedive and be a successful company when this is done."

Under the survival plan proposed by GM last week, the U.S. would trade about $ 10 billion in debt for at least half ownership of a company that now has a market capitalization of about $1 billion. The government could get back the loans through dividends, but future profits are highly uncertain because the auto sales outlook remains bleak. GM hasn't posted a profit since the second quarter of 2007.

Some fear that a GM trip through bankruptcy court - which executives have said is probable - could further hurt sales. The company holds out hope it can avoid bankruptcy and is working to reach an agreement with stakeholders by June 1.

GM Chief Financial Officer Ray Young said the company still intends to repay the loans, but not as quickly as it initially hoped. He attributed the change in the company's stance mainly to worsening economic conditions since last year. He also said the company is implementing a more radical restructuring than initially planned that will require more money up front.

"We will require more capital to implement the restructuring," Young said in a phone interview last week. "The time to repay the loans will take longer than we thought."

The Obama administration has already acknowledged that it likely won't recoup $4 billion it lent to Chrysler this winter, conceding the loan was made to a deeply leveraged company "where there was probably never much hope of seeing much recovery." In addition, Chrysler probably won't be able repay in full $4.5 billion in bankruptcy financing from the U.S. and Canadian governments, an adviser to the auto maker said at a court hearing earlier this week.

The prospect of the government taking a loss on the GM loans presents another political risk for the Obama administration as it oversees the restructuring of the U.S. auto industry. Forgiving the loans could lead to a public backlash and damage the government's credibility. When the original loans were issued, auto executives insisted they would pay them back, balking at the term "bailout" and instead characterizing the money as bridge loans.


According to a GM filing with the government Tuesday, the Treasury has yet to agree on the proposed debt-for-equity exchange. "These discussions are ongoing and the U.S. Treasury has not agreed, or indicated a willingness to agree, to any specific level of debt reduction," the filing states.

The Treasury may have no good options in terms of what to do with GM, said Michael Benson, managing director for automotive investment banking at Stout Risius Ross. GM doesn't have the cash to repay its debt, and its equity may be divided among the U.S., bondholders, and the United Auto Workers retiree health fund. If the U.S. refused to forgive the loans, the auto maker's balance sheet would continue to be leveraged, hampering its restructuring.

"If debt levels stay this high, GM will have a hard time surviving," Benson said, adding that the battle among stakeholders for GM equity makes bankruptcy " inevitable."

"Only a bankruptcy judge will be able to cram down a plan," he said.

-By Josh Mitchell and Eric Morath, Dow Jones Newswires; 202-862-6637


http://money.cnn.com/news/newsfeeds/articles/djf500/200905061744DOWJONESDJONLINE001017_FORTUNE5.htm

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Re: US Government Might Not Recoup Loans To GM

Post by CarolinaHound on Wed May 13, 2009 12:26 pm

Anybody that thought those companies would pay that bailout money back were blind.

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Re: US Government Might Not Recoup Loans To GM

Post by HotParadox on Wed May 13, 2009 12:35 pm

we were all very interested in this a few months ago but now it seems that people are not reacting much to this, so far. are people simply of the mind that it is water under the bridge/oh well, we're just stuck with this play money debt, that we have to pay off with our actual, hard earned money?

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Re: US Government Might Not Recoup Loans To GM

Post by CarolinaHound on Wed May 13, 2009 12:51 pm

I think people have live in this country with no worries so long that they have no idea what kind of trouble we are headed for.

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Re: US Government Might Not Recoup Loans To GM

Post by Peregrine(Endangered) on Wed May 13, 2009 3:26 pm

I really want to be optimistic but.....we're screwed...I feel the government is trying to wipe out the middle and lower class folks. And they are suceeding...slowly but surely....GM is just going to have to fail and I don't see any hope of recuping the money...We will see a corvette or Camaro in the museum not on the road...
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Re: US Government Might Not Recoup Loans To GM

Post by PaulM on Thu May 14, 2009 11:00 am

I wonder when the GM auction will be?

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Re: US Government Might Not Recoup Loans To GM

Post by Peregrine(Endangered) on Thu May 14, 2009 11:33 am

PaulM wrote:I wonder when the GM auction will be?

I like to know...probably could get a good deal.
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Re: US Government Might Not Recoup Loans To GM

Post by Old Timer on Sun May 17, 2009 10:02 am

But let's not get to downtrodden here folks. No matter how bad it gets, it could always get worse. Remember, even after the worst forest fire, a new forest will spring forth. This country has had it's up's and it's down's and has always recovered because of the spirit of its citizens and it shall again. Of this I have no doubt. The world has often found out that they can kill the person who wants to be free, but they cannot kill the thought of freedom, and that is what keeps us going. Very Happy

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Re: US Government Might Not Recoup Loans To GM

Post by Terry05_99 on Sun May 17, 2009 11:04 am

HotParadox wrote:we were all very interested in this a few months ago but now it seems that people are not reacting much to this, so far. are people simply of the mind that it is water under the bridge/oh well, we're just stuck with this play money debt, that we have to pay off with our actual, hard earned money?

My personal feeling, the government does what it wants, no one listens to "the people" anymore. So you begin to get the feeling that why bother, it won't mean anything anyways. Honestly, the corruption will bring down this country and for that matter the entire world economy. Politicans are sickening

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Re: US Government Might Not Recoup Loans To GM

Post by Old Timer on Sun May 17, 2009 12:36 pm

Terry05_99 wrote:
HotParadox wrote:we were all very interested in this a few months ago but now it seems that people are not reacting much to this, so far. are people simply of the mind that it is water under the bridge/oh well, we're just stuck with this play money debt, that we have to pay off with our actual, hard earned money?

My personal feeling, the government does what it wants, no one listens to "the people" anymore. So you begin to get the feeling that why bother, it won't mean anything anyways. Honestly, the corruption will bring down this country and for that matter the entire world economy. Politicans are sickening

Like I said earlier, we are no longer being represented. We are now being ruled.

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