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GM CEO promises profit for taxpayers

whitacre_pelosi.gi.top.jpgGM CEO Ed Whitacre shakes hands with House Speaker Nancy Pelosi at the auto industry's key trade show in Detroit. Whitacre made the bold claim that the government will profit on its $50 billion investment in GM.By Chris Isidore, senior writer


DETROIT (CNNMoney.com) -- General Motors Chairman and CEO Ed Whitacre promised Monday that taxpayers will make a profit on the $50 billion that Treasury has sunk into the company over the past 13 months.

"I think the government's investment is well placed and I think they'll make a lot of money," Whitacre told reporters after an event at the annual auto show here Monday morning. "It won't be too long."

The promise of profits on the investment, which was echoed by GM Vice Chairman Bob Lutz in an interview with CNNMoney.com Monday, is quite a bit more bullish than any previous forecast made by a GM executive.

GM has previously said it would repay a $6.7 billion loan that it received from Treasury by June of this year. It has already made the first payment of $1 billion.

In order for the rest of the money to be returned to taxpayers though, GM will need to file for an initial public offering of its stock so that Treasury can sell its 61% stake in GM.

Even if GM goes public again, the value of its stock would have to greatly exceed levels it had traded at before the company's bankruptcy in order for the stock to be worth enough for taxpayers to make a profit.

In fact, the company's overall market value would have to hit at least $67 billion for Treasury to recoup its investment. But Rod Lache, an analyst with Deutsche Bank, estimated in November that based on the trading in GM's bonds, investors were putting the future value of the company at only $42 billion.

So it remains uncertain if Whitacre will be able to back up his bold claim.

No promises at Chrysler. But across the floor of the auto show, Sergio Marchionne, the CEO of both Chrysler Group and its Italian owner Fiat, said he couldn't make a similar promise about taxpayers profiting from Chrysler.

The U.S. government invested $12.8 billion in Chrysler last year but the Treasury Department owns less than 10% of the company. Because of this, the amount of money that Chrysler may be able to raise could be more limited than GM.

"It's difficult to tell. It's a completely different arrangement that we have," Marchionne told CNNMoney.com.

Improved outlook. Still, Whitacre wasn't the only one suggesting that GM could actually be a profitable investment for the government.

Steven Rattner, the former head of the Treasury's auto task force that gave GM the money in the first place -- said at the time GM exited bankruptcy last year that repaying the full $50 billion was very unlikely. But Rattner said Monday morning that things have improved enough at GM that such a return is now possible.

"I think that in making forecasts one should be prudent," said Rattner. "But certainly the recent progress at GM gives reason for optimism that it may be possible for taxpayers to get every penny back."

Rattner said the key factor that will determine if taxpayers are made whole for their investment in GM is how long Treasury decides to hold onto its shares after an IPO. Treasury is on record as saying they hope to sell the GM shares as soon as the market will allow for disposal of that big of a stake.

But not everyone was so optimistic.

Andrew Moylan, the national director of government affairs for the National Taxpayers Union, a conservative group opposed to the bailout, said he believes taxpayers stand to lose about $30 billion on the investments in GM and Chrysler

His group held a protest outside the auto show. The United Auto Workers union held a counter protest that drew more people.

"Whitacre is a talented P.R. man. I think taxpayers ought to be concerned, and it's the reason that bailouts are a bad idea," he said. "Fundamentally we do not agree that the government should be investing in private companies."

Congressional leaders hopeful. The auto executives got to tell their story to a delegation of leading Congressional Democrats, sprinkled with a couple of Michigan Republican members of the House, who toured the show Monday.

When asked about Whitacre's profit prediction, House Speaker Nancy Pelosi (D-CA) told CNNMoney.com, "I certainly hope so. We have to have that."

House Majority Leader Steny Hoyer (D-MD) added that he was encouraged by what he saw at the show but said it could be a problem if GM does not make good on its promise.

"Obviously anytime you make a claim that is not met in a reasonable time frame, people will say, 'Gee it didn't work,'" he said.

United Auto Workers union President Ron Gettelfinger said he believes the industry will be able to produce enough profit to lift the value of the investments in GM and Chrysler. Trust funds controlled by the UAW are the largest shareholder at Chrysler and a major shareholder at GM.

"Unless something major happens in the economy overall, I think things are looking up," he said.

Bailout prevented 'catastrophe.' Erich Merkle, president of Autoconomy.com, an automotive analytics firm, said that even if the government's shares in GM and Chrysler don't turn a profit, it was probably a good investment due to the deeper economic disruption it prevented.

"You had to avoid what otherwise would have been an economic catastrophe," he said.

But John Casesa, an industry expert with the Casesa Shapiro Group, said while the bailout limited the damage that would have occurred if the companies went out of business, it also created more difficult economics for the industry going forward because there still is excess capacity. That will keep downward pressure on car prices.

"Even when sales volumes recover, it's reasonable to expect that pricing will remain very challenging," he said at a forum Sunday evening. He would not speculate on whether taxpayers would be able to turn a profit on the investments in GM and Chrysler. To top of page

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