General Motors repaid Wednesday 8.1 billion US dollars in government loans, five years ahead of schedule and nine months after the troubled auto giant declared bankruptcy, signalling that the auto maker may be on the path to profitability.
”As of today, General Motors (Motors Liquidation Company – MTLQQ) has repaid in full and interest said GM CEO Ed Whitacre to a crowd assembled on floor of a GM plant in Kansas City.
Whitacre also announced GM's plan to invest 257 million in that plant and another in Detroit to ramp up production of the hot selling Chevy Malibu model.
When it emerged from restructuring last year, GM had converted most of the 52 billion in federal bailout funds into company stock, leaving a 6.7 billion outstanding loan from the US Treasury. The Canadian Government lent the company an additional 1.4 billion.
With ownership of 61% of GM's shares, US taxpayers still have billions invested in the auto maker, but analysts say there's reason to believe that investment could now pay off. If the government can sell its stake in GM for more than 45 billion, then taxpayers could actually make a profit.
Bankruptcy offered GM a chance to shed unprofitable product lines and expensive legacy costs, including large union pensions. Along with a management shake-up that came with the bailout, a line of well-reviewed vehicles is now catching on with the public.
General Motors has undergone a revolution in top management said Micheline Maynard, an auto writer for the New York Times. Because they don't have loyalties to the past, they can go in with fresh ideas.
Although GM still lost 3.4 billion in the fourth quarter of 2009, analysts expect that the company will start turning a profit this year and could follow with a public offering of GM stock.
The Obama administration was already taking credit for the bailout's success today, noting in a report that the turnaround of GM and Chrysler saved an estimated 1 million jobs from elimination last year.
This turnaround wasn't an accident of history, wrote White House economic adviser Larry Summers on the White House web page. It was the result of considered and politically difficult decisions made by President Obama to provide GM and Chrysler—and indeed the auto industry—a lifeline.
Treasury Secretary Tim Geithner echoed Summers, saying in a statement: This continued progress is a positive sign for our auto investment—not only more funds recovered for the taxpayer but also countless jobs saved and the successful stabilization of a vital industry for our country”.
Despite the billions paid back by GM today, there are billions more bailout dollars still outstanding.
Of the 14 billion given to Chrysler just 1.8 billion has been returned. Economists say that Chrysler was in a deeper hole than GM, but there's still a chance that taxpayers will get their money back.