Automakers may pay off more debt than expected
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TEXT OF INTERVIEW
Kai Ryssdal: Speaking of bumpy, this has been quite a week for news about the government’s bailout of the auto industry. Yesterday, it was a poke in the eye for the White House about how it forced GM and Chrysler to shut down thousands of dealerships. Today, courtesy of the Detroit Free Press, comes some hope that taxpayers will get more of their bailout money back than we’d thought.
Justin Hyde wrote the story in the paper today. Welcome to the program.
Justin Hyde: Thanks for having me. Kai.
Ryssdal: Let’s start with the place that the government has the most of its money, and thus the greatest possibility of reward I suppose — General Motors. How are we doing there, the taxpayers?
Hyde: Well, the Treasury has put about $50 billion into GM over the past couple of years. GM has made some progress. Its sales have come back a little bit. More importantly, it’s starting to turn a profit, and as you look forward to see some of the new vehicles that are coming out of the pipeline, things seems to be moving towards a positive direction for the company. We’re all kind of expecting that by November GM will try to put its shares up for sale again on Wall Street.
Ryssdal: Explore that for me a little bit. What is the mechanism by which the Treasury Department might divest itself and thus get some of its money back? Do we know yet?
Hyde: It’s not quite clear exactly how fast or how slowly Treasury will unfold itself and unfold its stake. You know, they’ve made comments in the past about trying to balance getting to get out of the company as quickly as possible with returning some money to the taxpayer. They don’t want to have a fire sale that damages GM’s share prices the moment they hit the market. It’s going to be a bit of a balancing act to see how they can extricate themselves from this process.
Ryssdal: Yeah, speaking of balancing acts, that really is Chrysler in a nutshell, right? You’ve got employees owning part of the company through their health care plan. You’ve got Fiat is involved and Washington owns far less of it than they do of GM. What’s the state of play there?
Hyde: They’re still getting their ducks in a row. They’re not expected to get back in the stock market this year. Their bankruptcy was a lot more disruptive than General Motors’ was. They’ve been really trying to get their new vehicle pipeline restarted. The first of those new models is just getting to market. It will take a couple of years to really see how well new CEO Sergio Marchionne is turning around Chrysler. In that case, it may be a little harder to get Treasury to get out. It may take a little longer.
Ryssdal: Alright, the last one to think about here is Ally Financial, which is first of all the company that used to be known as GMAC. It’s also an underwriter of this program. Did a lot of auto financing obviously across the auto industry. But it’s wrapped up, as you pointed out, in the mortgage mess.
Hyde: Ally Financials was deep in the mortgage market back in the mid-2000s and suffered tremendously when the housing market collapsed. Treasury has said very little about how it intends to get out of Ally. It owns the majority of the company, it’s its largest shareholder. The current management at Ally has said their goal is to pay back the government in its entirety. That may be a tough order, but given that the way the financial industry has bounced back in this crisis in the ways that other industries have not, it’s possible that Ally may be the best bet the government has right now to get all of its money back.
Ryssdal: So net-net though, of the $86 billion that the government made available to the auto industry writ large of the last couple of years, how much are we going to get back?
Hyde: Well right now, the most recent estimate from the U.S. government says that they’re expecting to lose about $24 billion. That uses some pretty conservative assumptions. We went through, looked at the math again. Our best guess right now is that the government will still probably lose roughly $12 billion. At one point, the government was expecting to lose more than $12 billion on the GM investment alone. So it does certainly mark a recovery from what was expected going into the bankruptcies of GM and Chrysler last year. Still, a loss position. There’s really no one out there who thinks that the government can break even, but compared to the financial industry rescue, it’s not quite as severe a loss as what was once expected.
Ryssdal: Justin Hyde from the Detroit Free Press. He’s in the Washington bureau. Justin, thanks a bunch.
Hyde: Thank you so much, Kai.
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