Taxpayers Unlikely To Recoup GM's Bailout Cash

I know: the headline above is probably not shocking to anyone at this point. But an article today from the New York Times DealBook does such a great job of illustrating this that I thought it was worth noting -- especially since just last week GM announced that it hoped to give back $6.7 billion to the U.S. government. Taxpayers should hardly take comfort in that claim.

Here's the DealBook explaining the insignificance of that $6.7 billion:

For starters, $6.7 billion doesn't begin to scratch the surface of what G.M. actually owes us. Over the past 12 months, the Treasury has given it some $52 billion in the form of cash, loans and the purchase of that 60 percent of the company's post-bankruptcy equity. And that number fails to take into account the two bailouts of G.M.'s former lending arm, GMAC, or the $3 billion spent on the "cash for clunkers program," which doubtless kept the company from posting even deeper losses.

Moreover, G.M. is not, in the strictest sense, paying back taxpayers at all. Rather, it is refunding $6.7 billion of an $18 billion escrow account that was given to it by the government when it emerged from bankruptcy. The rest of that account will be used to cover fourth-quarter losses (including $2.8 billion pledged for the rescue of G.M.'s major parts supplier, Delphi), repay loans from the Canadian government, and possibly prop up the automaker's shaky European operations. That escrow account is due to expire in June, at which time G.M. will repay what remains of the $6.7 billion from this week's pledge -- and then pocket the estimated $5.6 billion remainder.

It, admittedly, could be worse: GM could be keeping that $6.7 billion as well. But repaying that amount hardly shows that it's a new day at the automaker. Just that the U.S. government put a little more money than necessary at its disposal.

But GM also touted the idea of a stock offering next year that could serve as a means to repay taxpayers. DealBook scoffs:

Unfortunately, any hope of an I.P.O. completely repaying taxpayers is wildly optimistic. Even before Mr. Henderson hinted at a timeline, a Government Accountability Office report pointed out that G.M. would have to attract a market capitalization of $66.9 billion for taxpayers to recoup the government's investment. Sorry, but that's a pipe dream: G.M. has never been worth more than $57 billion, and that was in the salad days of 2000.

I don't see any realistic scenario under which GM will ever fully repay the government. Because remember, that $52+ billion it owes doesn't even include interest. So even if the company could manage to repay the nominal $52 billion over 10-15 years -- which is still doubtful -- much of that would have been interest. And the longer it takes to repay, the more interest it will accrue on its loans. That's why it's pretty inadvisable for a company to start from scratch with a whopping $52+ billion of debt.

But matters are even worse from the taxpayer standpoint. If GM is paying a great deal of interest on these loans, and I certainly hope that it is, then that will necessarily decrease the amount of taxes it would have paid on its earnings, since it will deduct that interest expense. So really that interest money will partially offset tax payments that the government would have gotten anyway. This further indicates that the bailout will almost certainly turn out to be a raw deal for taxpayers.