Parliament building for the Canadian government

The jury is still out, if the $80 billion bailout from the federal government for General Motors and Chrysler saved the auto industry. Chrysler is repaying $5.9 billion in U.S. loans, and a $1.7 billion loan to the Canadian government. The company has been bought by Fiat, the Italian company, and the U.S. government will lose around $1.4 billion in the bankruptcy deal.

 

 

General Motors who also went through bankruptcy, received $49 billion from the federal government. The vast bulk of the bailout money was $6.7 billion in pure loan, and 60% equity stake in the company. The Canadian government gave GM $1.4 billion as pure loan, and another $8.1 billion for an 11.7 percent in equity holding. The U.S. and Canadian government initially together owned 72% of the company.

In the last weeks, the Obama administration has announced that GM and Chrysler have paid back their loans to the federal government and they will loss only $14 billion. It is very strange that these two companies are able to pay back a loan and either company has broken even or made a profit.

It is obvious that the federal government and the two automobile companies are doing some creative accounting to make the numbers work. Without a company making a profit, it is very difficult for it to pay back a loan, unless they were given more money in another deal.

GM was able to pay a loan off ahead of schedule, because the Obama administration gave the company and additional $13.4 billion as “working capital.” There were no stipulations on how they could spend the money. GM used the money to pay back the U.S. and the Canadian government with “working capital” money.

In other words, GM is using government money to pay back government money to get more government money. President Obama and his administration is celebrating the auto companies for doing a good job with the bailout loans, but the government is giving them more bailout money.

The government is not being transparent with its information, when they tell the public that the two auto companies are paying back their loans. Both of the companies were bankrupted and the government is using taxpayer’s tax money to prop and financially support the companies. The government is digging a deep hole, and they are only telling half of the story.

The government has sold Chrysler to Fiat and the Italian automaker now controls 52% of the stock. The rest of the stock is owned by United Auto Workers, and there are no guarantees that this partnership will be successful. But at this point the U.S. can wash its hands of this financial nightmare.

GM is a bigger headache because the government still owns about 23% of the stock, and the loan was paid

U.S. Secretary of Treasury Tim Geithner

by other government money. U.S. Secretary of Treasury Tim Geithner says, “Today, America automakers are mounting one of the most improbable turnarounds in recent history – creating new jobs and making investments in communities across our country.”

This is a great statement, but either one of the auto companies have broke even up to this point. Paying off government loans with more government money is deceitful and eventually there will be a major financial problem.

Losing $14 billion on any loan is a terrible deal. Knowing that the loan was paid with more government money makes the auto bailout a worst deal, which could put our economy back into a recession. Without any earning or profits, there should be no celebration and announcement of a historic turnaround in the auto industry.

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