GM bailout: The sequel
The new General Motors Corp. is trying to heighten interest in its sale
of about $10 billion in stock held by its rescuers - the United Auto
Workers health care trust fund and the governments of Canada, the United
States and the province of Ontario.
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
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.
"I have tried to live my life so that my family would love me and my
friends respect me. The others can do whatever the hell they please."
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