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Thursday, January 27, 2011

GM Says “No Thanks” To More Government Loans

General Motors Co. is announcing today it will end its request for as much as $14.4 billion in loans from the Energy Department's $25 billion retooling program.

GM had applied for $14.4 billion in loans to retool plants and build more fuel-efficient vehicles, including about $4.4 billion in applications by operations that were reacquired from Delphi, its former auto supplier.

"This decision is based on our confidence in GM's overall progress and strong, global business performance," said GM chief financial officer Chris Liddell. "Withdrawing our DOE loan application is consistent with our goal to carry minimal debt on our balance sheet."

Liddell said the decision won't delay any of its product planning. It "will not slow our aggressive plans to bring more new vehicles and technologies to the market as quickly as we can."

GM has more than $20 billion in liquidity on its balance sheet and is in a much stronger position in the wake of its bankruptcy restructuring. GM is confident it can pay for the programs on its own.

GM's been debating dropping the request -- which it first made in late 2008 -- for months. Last week, the company's board of directors approved the decision to withdraw the application.
The move means that the Energy Department will have about $10 billion left in its program to award to other applications.

Stephanie Mueller, an Energy spokeswoman, said the decision was a sign of GM's health," she said.

"GM's decision to produce the next generation of efficient vehicles without a government loan is yet another milestone in the turnaround of America's auto industry," Mueller said.
GM's withdrawal will allow the government "to support a number of other innovative automobile technologies."

To date, the Energy Department has awarded about $8.5 billion, including $5.9 billion to Ford Motor Co. and $1.4 billion to Nissan Motor Co. Two start-up electric vehicle firms, Tesla Motors and Fisker Automotive, each received around $500 million.

"You are seeing the fruits of the program," said Ziad Ojakli, Ford's group vice president of government and community relations, pointing to the Ford Focus electric vehicle that's coming out later this year. "We used the DOE to speed production and move forward on fuel economy."
More than 100 companies initially sought $42.7 billion when the program was launched in late 2008, but many in Congress have criticized the slow pace of awards.

The only supplier to receive approval for a loan, Tenneco, also withdrew from the program after it had spent nearly six months working to close its loan.

Auburn Hills-based Chrysler Group LLC initially sought $8.55 billion, but has pared its request to around $3 billion.

Chrysler CEO Sergio Marchionne said he hopes to receive the funds by the end of March. The automaker is going ahead with fuel-efficiency projects, expecting it will receive the loan to help pay for them.

"I can't stop the machine," Marchionne said recently. "So far, I have been able to manage it (without the loan), but there will come a point in time when I have to go into the kitty and use other cash for this."

Sen. Debbie Stabenow, D-Lansing, said Chrysler's request would help protect 10,000 jobs in nine plants in four states, including Michigan.

The projects on which it is working "would save 520 million gallons of gasoline between 2011 and 2016," Stabenow said. "This is all about innovation and increasing fuel efficiency and technology." The low-cost retooling loan would allow Chrysler to reduce the $1 billion in annual interest it is paying on its federal bailout.

Ahead of its initial public offering in September, GM put its request on hold. GM officials have been signaling for months the loans weren't a top concern.

Then GM-CEO Edward Whitacre Jr. said in August that the loans were a "priority, but not a super priority."

President George W. Bush approved funding for the program in September 2008. GM and Chrysler urged Democrats to tap the program for a bailout and the House agreed in December 2008, but the Senate failed to act.

Bush opted to use the Troubled Asset Relief Program to rescue GM, Chrysler and their finance arms with about $25 billion.

The Obama administration put GM and Chrysler through bankruptcy and added about $60 billion to the bailout.

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