Geithner Claims “Reasonable Chance” GM and Chrysler Will Repay Aid

But of course, there’s a catch.

By Chris Haak

US Treasury Secretary Timothy Geithner told the Senate Appropriations Subcommittee that taxpayers were still at risk of loss from the investments that the US government made in GM and Chrysler, but that any potential loss would be just a fraction of the original amounts feared.  He also said that there was a “reasonable chance” that both GM and Chrysler would be recouped.

However, it’s important to hone in on specifically what he said.  He said there was a “reasonable chance now that we will recover all of the dollars we put into these companies” since January 2009.  Of course, on January 20, 2009, the Obama administration took office.  The key phrase (which I italicized above) is “since January 2009.”  (Alternately, “we put into these companies” would work, if “we” in that context is the Obama administration.

Back in December 2008, President George W. Bush committed $17.4 billion in loans from TARP to GM and Chrysler.  Of that sum, $13.4 billion went to GM and $4 billion went to Chrysler.  So, of the roughly $50 billion price tag that went toward bailing out GM, about $36.6 billion came from the Obama administration.  Putting aside from the loan repayment from its escrow account, the government still owns a significant portion of GM, none of which will be recovered until the company successfully completes its IPO.  That is likely to occur later this year, but the $50 billion question is how much money the IPO will raise, which will determine what proportion of the total aid will be repaid to the Treasury.

Chrysler’s situation is a little different; the US government only owns 8 percent of the struggling automaker.  The Canadian government owns 2 percent.  So, in Chrysler’s case, there is less aid on the line and less interest, perhaps, in a government divestiture in the short term.

By drawing a line – which I don’t believe for a moment was accidental – Geithner is lowering the bar by which a successful repayment should be defined.  It’s of course desirable to have all aid, not just aid given by the Obama administration, repaid in full – “with interest,” to borrow from Ed Whitacre’s commercial.  But if that is actually not likely to occur (and most analysts don’t feel that all of it is likely to be raised by GM’s IPO), let’s be honest about prospects for recovery.  Not just prospects for recovering the portion awarded since January 20, forgetting about the $17.4 billion handed out before then.