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The subtitle says: "ONLY AMERICAN CAR COMPANY TO HAVE PAID BACK GOVERNMENT" Assuming that's true, I'm not sure whether I should be proud of Tesla, ashamed of o

The subtitle says: "ONLY AMERICAN CAR COMPANY TO HAVE PAID BACK GOVERNMENT" Assuming that's true, I'm not sure whether I should be proud of Tesla, ashamed of our Government, or angered at other car companies. Probably all three...

lclarkmichalek 13y ago
What's the problem with companies paying back loans when they "need" to (i.e. when the loan comes to an end)?
- malkia 13y ago
  more like to give an example?
- gridspy 13y ago
  It can leave you exposed if you're ever forced to pay it back by the government. If the timing is wrong it might be hard to raise the money.
davidrudder 13y ago
I'm not an economist, but this is how I understand it. GM paid back it's debt in full, but it paid most of it back in stock. The US government has sold some of it, so it's gotten about half of it's bailout back in cash. But, it still has a ton of GM stock. It's selling the stock slowly to avoid disrupting the market. That being said, the government needs to sell at something like $75/share to make their money back, but it's at $33 as I write this. Source: http://www.fool.com/investing/general/2013/05/09/when-will-gm-pay-back-its-bailout.aspx http://www.fool.com/investing/general/2013/05/09/when-will-g...
- testing12341234 13y ago
  This announcement doesn't really have anything to do with GM (or even apply to them) in anything but the "we gave them a loan" sense. From the linked article: "This program is often confused with the financial bailouts provided to the then bankrupt GM and Chrysler, who were ineligible for the ATVM program, because a requirement of that program was good financial health."
  - davidrudder 13y ago
    Yeah, I thought that was confusing. "We're the only", "but in some circumstances we're not really talking about everyone". I thought it was worth answering the question "did GM pay back it's loan" because GM is the largest and most notorious recipient of US loan money. Maybe Tesla really did mean "We're the only American company who received an ATVM loan to pay it back." But, if so, they're being intentionally misleading.
- nathan_long 13y ago
  >> GM paid back it's debt in full, but it paid most of it back in stock. ... the government needs to sell at something like $75/share to make their money back, but it's at $33 as I write this. So they "paid" their debt with something that 1) isn't worth enough to cover their debt and may never be 2) gives the government a financial interest in continuing to keep them afloat. Pretty nice deal if you can get it.
3am 13y ago
Why be mad at anything? At most be mad at car makers for running so leveraged that they had liquidity problems at the same time that all the major lenders in the financial system ran into solvency problems (and feel free to be mad at the financial sector) But given that, it was _excellent_ government policy to guarantee loans to the automakers, just from a cost/benefit perspective. And there's no shame in not going above and beyond the repayment terms of a loan - but good for Tesla for doing so (and great marketing).
- Uhhrrr 13y ago
  GM was in trouble long before the 2008 crash: http://www.thetruthaboutcars.com/2008/06/general-motors-death-watch-181-bankruptcy/ http://www.thetruthaboutcars.com/2008/06/general-motors-deat... (in June 2008, they were already up to part 181 in their series) Also, guaranteed loans for automakers might be excellent compared to other government policy, but given that Ford didn't take a loan, and there are many foreign companies which didn't need loans, the existence of any benefit from subsidizing more poorly-run automakers is questionable.
  - dragonwriter 13y ago
    > Also, guaranteed loans for automakers might be excellent compared to other government policy, but given that Ford didn't take a loan, and there are many foreign companies which didn't need loans, the existence of any benefit from subsidizing more poorly-run automakers is questionable. FWIW, Ford's CEO disagreed, which is both why he went to Congress in 2008 to argue for the bailout, and defended the bailout in 2012 as having been good for the country, the industry, and Ford even though Ford wasn't a direct beneficiary [1]. [1] http://articles.latimes.com/2012/apr/19/news/la-ol-ford-ceo-rebuts-mitt-romney-auto-bankruptcy-view-20120418 http://articles.latimes.com/2012/apr/19/news/la-ol-ford-ceo-...
    - Uhhrrr 13y ago
      Well yeah. The bailout terms were heavily slanted towards the unions. Of course Ford preferred the bailout to competing against some company which might buy all the assets at bankruptcy prices and then hire workers on much more favorable terms.
dcosson 13y ago
I'm sure there was some money wasted along the way, but this makes me think of the often-quoted (around here at least) anecdote that VCs succeed not by getting decent returns across the board but by having one or two "home runs". If Tesla is the home run that this ATVM program made possible, maybe it doesn't matter if all the rest end up defaulting on the loans (which this article doesn't even imply, Tesla seems to have just paid back the loan early). Obviously the economics of government loans aren't exactly the same as those of VC investments, but making the large-scale production of electric cars economically feasible is a huge accomplishment that seems like it'd be worth the cost of this whole program.
- roin 13y ago
  As you noted, the problem is that the government bought debt, not equity, so they don't share in the upside that would make this a financial home run that makes up for other failures. That being said, the government isn't in this to make money, they're in it for the broader benefits that will spillover outside of the individual company receiving financing. In that sense the VC analogy could work, because a major successful electric car company in the US probably would be a "home run" for the country (and the world) on several dimensions, more than making up for losses on the way.
  - tufyjggbfhry 13y ago
    What the fuck are you talking about? They are in it for the money, in the form of taxes. Taxes that are then used for public services.
rayiner 13y ago
Who ever pays back the government for stuff? It's largely besides the point. The government didn't bail out say GM because it wanted to get a return on its investment. It did so because of the fear that letting Detroit go bankrupt would have a domino effect that would leave a gaping crater in employment. If the car companies manage to pay back the government, great. Even if they don't, that wasn't really the point.
- ericcumbee 13y ago
  Yet GM still went bankrupt...just a few months later. People forget that. So what was really gained?
  - rayiner 13y ago
    There's bankruptcy as in a controlled restructuring, and then there is bankruptcy as in a failure of the business with ripple effects throughout the economy. What GM went through was the former, and it was foreseen at the time of the government's investment.
    - ericcumbee 13y ago
      There was nothing to keep them from going through a controlled bankruptcy at the start of it.
      - danielweber 13y ago
        People forget just how amazingly tight the credit markets were at that time. Extremely tight. To keep it short, the bailouts of both the auto sector and the banks were bad, but probably the least bad of a bunch of very worse options. The moral hazard problems with both of them are significant. (It's personally good to fail at the same time as everyone else, because you get bailed out, while we really want systems where failures are independent.)
- duck 13y ago
  fear that letting Detroit go bankrupt would have a domino effect that would leave a gaping crater in employment You mean like the +20% currently unemployed in Detroit? The best thing about Detroit is that one day it will be used as a case study of why entitlements don't work out the way people think they do.

lclarkmichalek 13y ago

What's the problem with companies paying back loans when they "need" to (i.e. when the loan comes to an end)?

malkia 13y ago
more like to give an example?
gridspy 13y ago
It can leave you exposed if you're ever forced to pay it back by the government. If the timing is wrong it might be hard to raise the money.

davidrudder 13y ago

I'm not an economist, but this is how I understand it. GM paid back it's debt in full, but it paid most of it back in stock. The US government has sold some of it, so it's gotten about half of it's bailout back in cash. But, it still has a ton of GM stock. It's selling the stock slowly to avoid disrupting the market. That being said, the government needs to sell at something like $75/share to make their money back, but it's at $33 as I write this. Source: http://www.fool.com/investing/general/2013/05/09/when-will-gm-pay-back-its-bailout.aspx http://www.fool.com/investing/general/2013/05/09/when-will-g...

testing12341234 13y ago
This announcement doesn't really have anything to do with GM (or even apply to them) in anything but the "we gave them a loan" sense. From the linked article: "This program is often confused with the financial bailouts provided to the then bankrupt GM and Chrysler, who were ineligible for the ATVM program, because a requirement of that program was good financial health."
- davidrudder 13y ago
  Yeah, I thought that was confusing. "We're the only", "but in some circumstances we're not really talking about everyone". I thought it was worth answering the question "did GM pay back it's loan" because GM is the largest and most notorious recipient of US loan money. Maybe Tesla really did mean "We're the only American company who received an ATVM loan to pay it back." But, if so, they're being intentionally misleading.
nathan_long 13y ago
>> GM paid back it's debt in full, but it paid most of it back in stock. ... the government needs to sell at something like $75/share to make their money back, but it's at $33 as I write this. So they "paid" their debt with something that 1) isn't worth enough to cover their debt and may never be 2) gives the government a financial interest in continuing to keep them afloat. Pretty nice deal if you can get it.

3am 13y ago

Why be mad at anything? At most be mad at car makers for running so leveraged that they had liquidity problems at the same time that all the major lenders in the financial system ran into solvency problems (and feel free to be mad at the financial sector) But given that, it was _excellent_ government policy to guarantee loans to the automakers, just from a cost/benefit perspective. And there's no shame in not going above and beyond the repayment terms of a loan - but good for Tesla for doing so (and great marketing).

Uhhrrr 13y ago
GM was in trouble long before the 2008 crash: http://www.thetruthaboutcars.com/2008/06/general-motors-death-watch-181-bankruptcy/ http://www.thetruthaboutcars.com/2008/06/general-motors-deat... (in June 2008, they were already up to part 181 in their series) Also, guaranteed loans for automakers might be excellent compared to other government policy, but given that Ford didn't take a loan, and there are many foreign companies which didn't need loans, the existence of any benefit from subsidizing more poorly-run automakers is questionable.
- dragonwriter 13y ago
  > Also, guaranteed loans for automakers might be excellent compared to other government policy, but given that Ford didn't take a loan, and there are many foreign companies which didn't need loans, the existence of any benefit from subsidizing more poorly-run automakers is questionable. FWIW, Ford's CEO disagreed, which is both why he went to Congress in 2008 to argue for the bailout, and defended the bailout in 2012 as having been good for the country, the industry, and Ford even though Ford wasn't a direct beneficiary [1]. [1] http://articles.latimes.com/2012/apr/19/news/la-ol-ford-ceo-rebuts-mitt-romney-auto-bankruptcy-view-20120418 http://articles.latimes.com/2012/apr/19/news/la-ol-ford-ceo-...
  - Uhhrrr 13y ago
    Well yeah. The bailout terms were heavily slanted towards the unions. Of course Ford preferred the bailout to competing against some company which might buy all the assets at bankruptcy prices and then hire workers on much more favorable terms.

dcosson 13y ago

I'm sure there was some money wasted along the way, but this makes me think of the often-quoted (around here at least) anecdote that VCs succeed not by getting decent returns across the board but by having one or two "home runs". If Tesla is the home run that this ATVM program made possible, maybe it doesn't matter if all the rest end up defaulting on the loans (which this article doesn't even imply, Tesla seems to have just paid back the loan early). Obviously the economics of government loans aren't exactly the same as those of VC investments, but making the large-scale production of electric cars economically feasible is a huge accomplishment that seems like it'd be worth the cost of this whole program.

roin 13y ago
As you noted, the problem is that the government bought debt, not equity, so they don't share in the upside that would make this a financial home run that makes up for other failures. That being said, the government isn't in this to make money, they're in it for the broader benefits that will spillover outside of the individual company receiving financing. In that sense the VC analogy could work, because a major successful electric car company in the US probably would be a "home run" for the country (and the world) on several dimensions, more than making up for losses on the way.
- tufyjggbfhry 13y ago
  What the fuck are you talking about? They are in it for the money, in the form of taxes. Taxes that are then used for public services.

rayiner 13y ago

Who ever pays back the government for stuff? It's largely besides the point. The government didn't bail out say GM because it wanted to get a return on its investment. It did so because of the fear that letting Detroit go bankrupt would have a domino effect that would leave a gaping crater in employment. If the car companies manage to pay back the government, great. Even if they don't, that wasn't really the point.

ericcumbee 13y ago
Yet GM still went bankrupt...just a few months later. People forget that. So what was really gained?
- rayiner 13y ago
  There's bankruptcy as in a controlled restructuring, and then there is bankruptcy as in a failure of the business with ripple effects throughout the economy. What GM went through was the former, and it was foreseen at the time of the government's investment.
  - ericcumbee 13y ago
    There was nothing to keep them from going through a controlled bankruptcy at the start of it.
    - danielweber 13y ago
      People forget just how amazingly tight the credit markets were at that time. Extremely tight. To keep it short, the bailouts of both the auto sector and the banks were bad, but probably the least bad of a bunch of very worse options. The moral hazard problems with both of them are significant. (It's personally good to fail at the same time as everyone else, because you get bailed out, while we really want systems where failures are independent.)
duck 13y ago
fear that letting Detroit go bankrupt would have a domino effect that would leave a gaping crater in employment You mean like the +20% currently unemployed in Detroit? The best thing about Detroit is that one day it will be used as a case study of why entitlements don't work out the way people think they do.