GM bailout: The sequel
Buyers will get an unusual bonus: the little-noticed forgiveness of about $45 billion in future federal income tax obligations to offset past losses and expenses of various kinds - a second bite of the bailout apple.
Such ?tax loss carry-forwards? are usually routine. Every company that loses money may apply those losses against future income. Ford Motor Co. has about $17 billion in ?tax assets.?
But that treatment is normally banned for companies that go through a bankruptcy as GM did. Bankruptcy normally gives other large advantages such as debt cancellation, which for GM was billions of dollars. The Internal Revenue Service, however, decided that companies that got money under the Troubled Asset Relief Program such as GM (and Chrysler, now owned by Italy?s Fiat) could apply the normal rule.
If the government kept its 61 percent stake in GM, 61 percent of the second bite of the apple would not matter. But all the stock is to be sold in installments and buyers will own the advantage.
The IRS ruling gives GM extra cash - an advantage that bankruptcy-avoiding competitors could not have foreseen - in addition to its $40-plus billion in debt reduction via bankruptcy. Ford, which did not enter bankruptcy, borrowed heavily and now carries $27 billion in debt on its books.
Ford and 15 or more other competitors cannot be happy with this sly tilt of the playing field.