The administration wasted no time in taking credit where it is due, saying that not only did the $85 billion auto industry bailout work, it saved millions of jobs. President Barack Obama “took a lot of heat” to keep GM alive, said Vice President Joe Biden. “And this has even exceeded our expectations.”
White House press secretary Robert Gibbs led off his press briefing with the GM and Chrysler news, saying it justifies President Obama's “very difficult and unpopular decision” to loan them money last year. The loans were designed to assist “a structured bankruptcy, and save 1 million to 3 million jobs.”
While the Obama administration still expects a loss on the taxpayer bailout of the industry, it will be smaller than initially forecast. The White House budget office once projected the loss on the GM package alone to be some $30B, but now says it will likely not exceed $8B.
GM didn't need to be making this payment now. The company had already paid back $2 billion of what it owes under the terms of the Troubled Asset Relief Program that began in December of 2008. The company had until 2015 to repay the rest but chose to do so now for reasons of business psychology in an attempt to reduce the “Government Motors” taint.
“We’ve developed a healthy, clean balance sheet and we’ve developed a cost structure that allows us to be competitive,” CEO Ed Whitacre, said of GM’s performance. Much of GM’s improvement comes from slashing its debt load and workforce as part of its bankruptcy reorganization last year. It has stated it wants to be a public company again as soon as practical, but CEO Whitacre's team has backed off of that commitment somewhat.
GM still owe $45.3-billion to the government that will be repaid when the company sells its IPO stock offering, which GM chief financial officer Chris Liddell said would take place “when the markets and the company are ready.” GM is still a long way from regaining its blue-chip status. It remains more than 60 per cent government-owned and lost $3.4 billion in last year's fourth quarter alone.
Whitacre, the former telecommunications executive, announced the loan playback at the company’s Fairfax Assembly Plant in Kansas City, Kan. He also said GM is investing $257 million in that factory and the Detroit-Hamtramck plant in Michigan. No new jobs will be added, but workers at both plants are gaining job security because they will build the next generation of the popular midsize Chevrolet Malibu.
Chrysler, now run by Italy's Fiat Group, posted an operating profit of $143 million in the first quarter that was attributed to cost cuts and sales of its new Ram Heavy Duty pickup. The company is building up cash but had a net loss of $197 million in the quarter and has shed $3.78 billion after it emerged from bankruptcy on June 10. That loss included $2.1 billion in payments to the healthcare trust fund of the United Auto Workers.
Chrysler-Fiat CEO Sergio Marchionne has said Chrysler will break even this year (Fiat also lost significant money last year) saying, “This positive operating result in the first quarter is a concrete indication to our customers, dealers and suppliers that the 2010 targets we have set for ourselves are achievable. We are also generating cash to finance the investments being made in our product portfolio and brand repositioning.”
Larry Summers, presidential economic adviser and co-architect of the bailout, wrote:
In 2008, the American auto industry lost over 400,000 jobs and analysts estimated that at least 1 million more jobs could have been lost had GM and Chrysler liquidated. That didn't happen. Instead, over the past nine months since GM and Chrysler emerged from bankruptcy, the industry has actually added 45,000 jobs— the strongest pace of job growth in the auto industry in nearly a decade.