AP's Story on GM's Bankruptcy Exit Defers, Then Understates, ~$100 Billion Total Cost

If you listened to any top-of-the-hour radio newscast yesterday, you probably heard that General Motors has exited from bankruptcy, with the company promising to really, really do better this time around.

You more than likely didn't hear anything about how much government money it has taken to enable GM to survive and reemerge. That's because original story sources like the Associated Press put off such troublesome disclosures until later in their reports.

In the AP's case, even when writers Tom Krisher and Ken Thomas, assisted by three other contributors, finally got around to discussing taxpayer funding in the 25th paragraph of their 29-paragraph report, they understated the amount of government money expended. The pair also seemed to imply that creditors of the "old GM," consisting of the parts the emerging company left behind, would be made whole, which is of course far from the case.

Here are the paragraphs from the story that relate to my observations:

General Motors completed an unusually quick exit from bankruptcy protection on Friday with ambitions of making money and building cars people are eager to buy. Once the world's largest and most powerful automaker, new GM is now leaner, cleansed of massive debt and burdensome contracts that would have sunk it without federal loans.

..... At a news conference, CEO Fritz Henderson said the revamped automaker will be faster and more responsive to customers than the old one. It will generate cash and repay billions in government loans ahead of a 2015 deadline.

..... GM, in a viability plan presented to the government, said it would break even before interest and taxes next year, and be slightly above break-even for 2011 on a pretax basis.

"Sitting here today, I don't have any reason to disbelieve those numbers," Henderson said, giving no details of when the company would make a net profit.

..... He said the U.S. government, which owns a majority stake in GM, has vowed that it would not get involved in day-to-day decisions.

..... GM received $19 billion to $20 billion more in federal aid on Friday, the remainder of the $50 billion it will receive, Henderson said. A large part of the money will be held in escrow.

Turning a profit will not be easy. GM has piled up losses and survives only because of government loans.

Besides the U.S. government's 61 percent controlling interest, the United Auto Workers union gets a 17.5 percent stake of the company through its retiree health care trust, and the Canadian government will control 11.7 percent. The remaining shares went to bondholders of the old company.

..... The parts of GM not moving to the new company will become part of "old GM," a collection of assets and liabilities that will be sold to pay creditors.

That last sentence should end with "to partially pay creditors, if there's any money available after administrative costs."

"Break even before interest and taxes" probably means "will lose billions."

But let's get to the government-provided money. Straight from the relevant page at FinancialStability.Gov, here is the list of GM-related disbursements:

• Dec. 29, 2008; Purchase of Debt Obligation -- $884,024,131
• Dec. 31, 2008; Debt Obligation with Warrants and Additional Note -- $13,400,000,000
• April 22, 2009; Debt Obligation with Warrants and Additional Note -- $2,000,000,000
• May 20, 2009; Debt Obligation with Warrants and Additional Note -- $4,000,000,000
• June 3, 2009; Debt Obligation with Warrants and Additional Note -- $30,100,000,000

The list totals to $49,984,024,131.39 (just kidding about the 39 cents).

The "$19-$20 billion" (they don't know?) mentioned in the article brings the grand total to just shy of $70 billion. The "$50 billion" the AP reporters refer to is the total of only the last line item above and the "$19-20 billion" that is not included in the above list. The first four line items have in essence been written off in exchange or the government's 61% controlling interest in the company.

To get that controlling interest the government had to shortchange unsecured creditors who had much more skin in the game. The final line-up, which is a bit different than was anticipated at the time of the linked post, is 61% to Uncle Sam; 11.7% to the Canadian government; 17.5% to the United Auto Workers retiree health care trust; and the rest to unsecured creditors, who, under duress, "forgave" $27 billion of the $35 billion they were owed. By contrast, the government got control of GM in exchange for writing off the first four line items above amounting to just shy of $20 billion.

Beyond all of this, the related FinancialStability.gov page lists $12.5 billion disbursed to GMAC, and $3.5 billion to an entity called "GM Supplier Receivables, LLC." The latter is meant to make GM suppliers whole for unpaid amounts the "old GM" never paid.

All of the disbursements identified add up to $86 billion (GM's real total of $70 billion plus the two amounts in the previous paragraph). Combining them with the hard to estimate but very real uncompensated portion of the unsecured creditors' "forgiveness" pushes the grand total of other peoples' money and resources expended in the name of saving the company to the neighborhood of $100 billion.

Separately, the AP writers referred to a Treasury statement "crediting GM's restructuring with saving both the automaker and 'tens of thousands' of American jobs." Assuming the jobs saved number is as high as 50,000 (I doubt it), that would mean that this entire episode cost $2 million per job saved ($100 bil divided by 50,000). Even if GM somehow survives, or even thrives, how can anyone possibly think throwing all of that money and value at the problem was worth it?

Cross-posted at BizzyBlog.com.