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GM Drops Request for Loans

January 29, 2011
3 min to read


DETROIT - General Motors Co. is withdrawing a request for $14.4 billion in low-cost Department of Energy loans, a move the auto maker hopes will win goodwill among consumers while furthering a strategy to end its practice of borrowing.


The auto maker said Thursday it doesn't need the loans, which it requested in 2009 as part of a Department of Energy program designed to help auto makers build more fuel-efficient vehicles, The Wall Street Journal reported.

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GM hopes the move will help put to rest the "government motors" stigma created by the federal government's $49.5 billion bailout in 2009. The auto maker plans to advertise its decision, a person familiar with the matter said.


The U.S. government cut its GM stake to 26.5% from 61% in last year's initial public offering of stock. But, GM has said, the government's involvement has remained a turnoff to some potential customers and investors.


Ford Motor Co. has capitalized on its standing as the only Detroit auto maker to avoid bankruptcy court and not ask for a bailout. Ford received $5.9 billion in DOE loans under the same program.


The low-interest loans were an attractive option for GM, which first applied for the aid amid its financial troubles in 2009. GM's financial position has improved dramatically and the company has promised investors it would eliminate virtually all debt over the next few years.


GM has since made it a top goal to get out of the practice of borrowing. The auto maker, when pitching itself to investors as part of last year's IPO, promised to operate virtually debt free. On Thursday, the company said that goal drove the decision to pull out of the loan program.

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The auto maker and the Energy Department had been negotiating loan terms under the $25 billion lending program.


GM's board approved the decision to withdraw the loan application last week and executives made the final decision in recent days, according to the person familiar with the matter. The projects that would have been funded by the government loans will now be funded by GM's available cash, therefore the auto maker won't go to the private financing market to get loans, this person said.


Since 2008, the Energy Department has awarded about $8.5 billion in loans, which includes the $5.9 billion to Ford and $1.4 billion to Nissan Motor Co. Chrysler Group LLC applied for loans under the program, but the department hasn't made a decision on whether to lend.


Separately on Thursday, GM said it will speed up the nationwide launch of the battery-powered Chevrolet Volt so that it is available to customers in all states starting this summer. Previously, GM had said the Volt would go on sale nationally by 2012.


GM Chief Executive Daniel Akerson is pushing hard to increase production of the Volt. It already is on sale in the Washington, D.C. area, California, New York, Connecticut, New Jersey and Texas. It is scheduled to go on sale in Michigan this spring.

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"This is the right thing to do for our customers and our dealers who are seeing increased traffic onto their showroom floors," Rick Scheidt, head of Chevrolet marketing, said in a written statement.

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