by Hans Bader on June 2, 2011
in Blog,Features
Obama Administration officials had advance notice that General Motors would run deceptive ads claiming to have paid taxpayers back for its bailout, and did not veto or object to those ads despite the opportunity to do so. Only later did Administration officials distance themselves from those deceptive claims, and they did so only after the falsity of those claims became so obvious to the public that they could no longer be parroted. Treasury Secretary Geithner had parroted those deceptive claims, which then drew criticism from the TARP inspector general, members of Congress, and financial reporters. Geithner publicly repeated GM’s deceptive claims, even though the Treasury Department had weeks in which to review GM’s claims and discover their inaccuracy.
Treasury Department Documents released last week in response to a think-tank’s Freedom of Information Act request make this clear. Those documents illustrate that GM and the Obama Administration coordinated GM’s PR strategy regarding the company’s controversial TV and print ad campaign in 2010, in which the car maker misleadingly claimed to have repaid what it received from taxpayers. In those ads, GM’s then-CEO, Ed Whitacre, claimed GM had already repaid its government bailout loan “in full, with interest, five years ahead of schedule.”
In May 2010, the Competitive Enterprise Institute (CEI) filed a deceptive advertising complaint with the FTC, and GM shortly thereafter stopped running the ads. CEI also filed a Freedom of Information request with Treasury for documents on the ad campaign. Those documents were finally released late last month, after a year of delay – far beyond the 20-day legal deadline for responding to FOIA requests.
CEI General Counsel Sam Kazman laments that “the US Treasury Department aided General Motors in its fraudulent claim that it fully repaid its government loans,” pointing out that “the detailed nature of their cooperation is demonstrated in the documents that the Department has finally produced, 12 long months after our original request. Now, the Treasury Department is re-enacting this smoke-and-mirrors routine on behalf of Chrysler,” Kazman observed.
The documents show GM coordinating PR strategy with the Obama Administration more than three weeks before launching the campaign. The White House received some of those GM materials at least two weeks before the ad campaign began. The Treasury Department delayed in responding to CEI’s FOIA request until after GM and Chrysler’s profits temporarily spiked, leading to the Administration’s current PR campaign touting the alleged “success” of the auto bailout. For example, Treasury Secretary Timothy Geithner wrote a Washington Post Op-Ed on June 1, 2011 with a similarly-misleading statement that Chrysler had repaid its government loans. On June 3, Obama himself will give a speech in Toledo, Ohio defending the auto bailout.
The communications between the Treasury, the White House, and GM on this PR effort were extensive. Starting on March 30, 2010, Brian Deese from the Executive Office of the President and many Treasury Department officials began exchanging emails related to the announcement. (See pages 55-59, 97-102.) These emails included draft schedules, draft remarks to be given by GM CEO Ed Whitacre, and draft press releases from both GM and the Treasury Department. See pp. 9-14; 18-24; 36-39; 83-96.
The Treasury Department saw the misleading advertisements GM was planning to make in advance, and did not object, despite having ample opportunity to object.
Indeed, Treasury Secretary Geithner issued a statement at the start of GM’s ad campaign, trumpeting its misleading claims, crowing that “GM had repaid in full the $4.7 billion balance it owed under the government’s Trouble Asset Relief Program.” But this so-called “repayment” was just a deceptive accounting trick. GM used government bailout money to make the “repayment.” As the Washington Examiner noted, Geithner was endorsing a “blatant misrepresentation.”
More importantly, this so-called “repayment” was just a drop in the bucket compared to what GM has received from taxpayers. The federal government had yet to recover the lion’s share of the more than $50 billion it loaned the company. Why? Because that $50 billion was mostly “converted into stock held by the Treasury Department” – stock worth far less than the billions the federal government injected into the company.
These claims were deeply misleading, as Senator Charles Grassley and the government’s own TARP Inspector General noted. GM’s statement that “We have repaid our government loans in full, with interest” was misleading,“according to Neil Barofsky, inspector general for the Troubled Asset Relief Program . . . ‘the source of funds for these quality [debt] payments will be other TARP funds currently held in an escrow account.” Senator Grassley noted that “‘TARP loans were not repaid from money GM is earning selling cars, as GM and the administration have claimed in their speeches, press releases and television commercials.’”
Eventually, financial reporters for newspapers like the New York Times and San Francisco Chronicle ridiculed these false claims. Gretchen Morgenson of the Times pointed out that “the company simply used other funds held by the Treasury to pay off its original loan.” Kathleen Pender of the Chronicle noted that “GM repaid its government loan with other government money.” The Washington Times observed that “General Motors Lost $3.4 billion” just before running the ad; “GM specifically used funds it received from the Troubled Asset Relief Program to pay off the government loan.”
Only after the falsity of GM’s claims became obvious to the general public did some Administration officials distance themselves from them. An April 29 email shows Treasury trying to “prepare a response today” to escalating criticism. (See pg. 11) On May 10, 2010, former auto czar Steve Rattner publicly admitted that “GM may have slightly elasticized the reality of things” in its claims of repayment. Treasury officials privately began to look for ways to respond to this reality. Rattner’s successor, Ron Bloom, wanted “a couple bullet points… for response if this comes up.” (See pp. 61-62.)
The Treasury Department’s role in facilitating GM’s deception may be far greater than the documents reveal, because the Treasury Department withheld some of the documents covered by the FOIA request, including portions of documents shedding light on White House involvement. For example, a blacked out item in the Treasury document release is a March 30 email from Brian Deese in the Executive Office regarding GM’s upcoming campaign. All of its content was blacked out except for the opening words, “Hi guys.” (See pages 58-59)
The Treasury Department waited until after the automakers’ finances had temporarily improved to produce the documents. GM’s finances have been temporarily propped up by the Japanese earthquake and tsunami that ravaged Toyota, and by earlier erroneous claims that Toyota’s automobiles were unsafe. Its profits have also been artificially puffed up by massive deferral of billions of dollars in growing UAW pension obligations. Moreover, as Conn Carroll notes in the Washington Examiner, Chrysler recent auto bailout pay back is in large measure fake.
As journalist Mickey Kaus has noted, “Sales and prices are up recently in part only because competing Japanese car suppliers have been crippled by the earthquake and tsunami. GM’s stock fell today and is still below the initial IPO price.”
Before that, GM’s finances were temporarily buoyed by bad PR regarding Toyota’s alleged safety defects in its cars, which turned out to be largely bogus. (The Toyota crashes turned out to have been caused by driver error, not manufacturing defects).
These things temporarily drove buyers away from Toyota to GM and Chrysler, artificially pumping up their profits. But massive earthquakes and Tsunamis like the one that hit Japan occur there only once or twice a century, and can’t keep GM going in the long run: “Car sales sputtered in May, slumping to levels that were much lower than expected as higher vehicle prices led consumers to put off purchases in the face of a weakening economy. Tightening supplies of vehicles after the Japan earthquake emboldened many companies . . . to raise car and truck prices, a strategy that analysts and investors said had backfired. U.S. automakers” like GM “reported sales on Wednesday that fell short of expectations as the industry experienced its lowest sales rate in eight months.”
GM stock is worth money partly because its government ownership stake allows it to claim up to $45 billion in tax savings that it would otherwise have had to forfeit as a result of its bankruptcy. GM is also receiving lots of taxpayer subsidies for its Chevy Volt, despite revelations that it lied about that car, which it was trumpeting in a “publicity stunt” to curry favor with politicians crusading against global warming.
GM still owes taxpayers at least $29.4 billion, and its finance arm, GMAC, owes taxpayers billions more. In a sense, taxpayers lost money on the sale of some of the government’s shares in General Motors in a 2010 IPO that was touted by government officials. (They got at least $9 billion less for the stock that was sold in the IPO than taxpayers originally paid for that stock.)
Even Kaus, who grudgingly supported the bailouts, thinks that people who bought GM stock were “suckers,” since GM faces hidden perils, still has too much red tape and inefficiency, lacks “effective internal controls,” and is the beneficiary of accounting gimmicks and unrealistic assumptions about its future market share.
In addition to the $50 billion, GM received billions in additional handouts through programs like the extraordinarily wasteful Cash for Clunkers (which cost taxpayers and used-car and car-parts businesses billions), and $17 billion given to its finance arm, GMAC.
GM might never have needed a bailout if it had just received relief from harmful regulations such as CAFE rules (which wipe out at least 50,000 jobs). It might have survived despite GM’s self-inflicted wounds from poor management, excessive wages and gold-plated union benefits (worth up to $70 an hour), and rigid union work rules.
Obama’s car czar left most of those wasteful work rules and excessive benefits intact, and gave the UAW much of General Motors’ stock, even though the UAW helped bankrupt the company, and the company has value today because the taxpayers pumped billions into the company (and engineered the wiping out of General Motors’ bondholders, some of whom were non-union employees who had invested their life savings in the company).
Veteran political commentator Michael Barone called the Obama administration’s treatment of Chrysler and GM bondholders “gangster government.” GMU law professor Todd Zywicki called it an attack on “the rule of law.” Such treatment may well discourage investors from investing in industrial companies in the future, reducing job creation and investment in the American economy.
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