GM Could Be Free of Taxes for Years

[Psephos]

Source: WSJ

General Motors Co. will drive away from its U.S.-government-financed restructuring with a final gift in its trunk: a tax break that could be worth as much as $45 billion.

GM, which plans to begin promoting its relisting on the stock exchange to investors this week, wiped out billions of dollars in debt, laid off thousands of employees and jettisoned money-losing brands during its U.S.-funded reorganization last year. Now it turns out, according to documents filed with federal regulators, the revamping left the car maker with another boost as it prepares to return to the stock market. It won't have to pay $45.4 billion in taxes on future profits.

The tax benefit stems from so-called tax-loss carry-forwards and other provisions, which allow companies to use losses in prior years and costs related to pensions and other expenses to shield profits from U.S. taxes for up to 20 years. In GM's case, the losses stem from years prior to when GM entered bankruptcy. Usually, companies that undergo a significant change in ownership risk having major restrictions put on their tax benefits. The U.S. bailout of GM, in which the Treasury took a 61% stake in the company, ordinarily would have resulted in GM having such limits put on its tax benefits, according to tax experts.

But the federal government, in a little-noticed ruling last year, decided that companies that received U.S. bailout money under the Troubled Asset Relief Program won't fall under that rule.

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Read more: http://online.wsj.com/article/SB10001424052748704462704575590642149103202.html?mod=WSJ_WSJ_US_News_5

[Lance_Boyle]

1. Jesus - Government Motors is the gift *we* have to keep on giving. n/t

[sarcasmo]

2. The true colors of this country. Corporate America, should be the new name of this land.

Never again GM will I EVER! buy one of you're products.

[Omaha Steve]

3. We bought 2 new GMs in 09

We have no problem buying from them in the future.

Think about the tax breaks other car makers get just to locate in a certain state. There are several other breaks. It all adds up.

[Telalim]

4. Oh well, something Obama can hang his hat on

When Obama bailed out the UAW and Obama Motors, we ensured victory in Ohio and Michigan.

Or not.

Now we get screwed again by corporate fatcats. Funny how this all works.

[leveymg]

5. A little gift from the U.S. to Cerberus Capital Mgmt, which owns a major share in GM & Chrysler

Which means, the investors behind the Bank Leumi, Ezra Merkin, Ken Feinberg and Bernie Madoff. See, http://www.dailykos.com/story/2007/3/10/21556/5045 From the Wiki:

Chrysler

In 2007, Cerberus and about 100 other investors purchased an 80% stake in Chrysler for $7.4 billion,<5> promising to bolster the auto maker’s performance by operating as an independent company. In 2008, the plan collapsed due to an unprecedented slowdown in the U.S. auto industry and a lack of capital.<6> In response to questioning at a hearing before the House committee on December 5, 2008 by Rep. Ginny Brown-Waite, Chrysler President and CEO Robert Nardelli said that Cerberus' fiduciary obligations to its other investors and investments prohibited it from injecting capital.<6>

On March 30, 2009, it was announced that Cerberus Capital Management will lose its equity stake and ownership in Chrysler as a condition of the Treasury Department’s bailout deal, but Cerberus will maintain a controlling stake in Chrysler’s financing arm, Chrysler Financial. Cerberus will utilize the first $2 billion in proceeds from its Chrysler Financial holding to backstop a $4 billion December 2008 Treasury Department loan given to Chrysler. In exchange for obtaining that loan, it promised many concessions including surrendering equity, foregoing profits, and giving up board seats:

"In order to achieve that goal Cerberus has advised the Treasury that it would contribute its equity in Chrysler automotive to labor and creditors as currency to facilitate the accommodations necessary to affect the restructuring."<7>

Chrysler Financial refused to take $750 million in Troubled Asset Relief Program (TARP) government bailout aid because executives didn't want to abide by executive-pay limits, and because the firm doesn't necessarily need the money.<8>

On April 30, 2009, Chrysler declared bankruptcy protection and announced that GMAC will become the financing source for new wholesale and retail Chrysler cars.<9>

Chrysler Financial, once the exclusive lending arm of the storied automaker, will liquidate and go out of business by Dec. 31, 2011, according to a letter from the U.S. Treasury Department.
GMAC

Cerberus acquired 51 percent of GMAC, General Motors' finance arm, in 2006 for $7.4 billion.<4> It appointed Merkin as nonexecutive Chairman.<10>

As of October 15, 2008, GMAC had $173 billion of debt against $140 billion of income-producing assets (loans and leases), some which are almost worthless, in addition to GMAC Bank’s $17 billion in deposits (a liability). Even if GMAC liquidated the loans and leases, it could not pay back all of its debt.<11>

On December 10, 2008, GMAC said, "GMAC LLC, the auto and home lender seeking federal aid, hasn’t obtained enough capital to become a bank holding company and may abandon the effort, casting new doubt on the firm’s ability to survive. A $38 billion debt exchange by GMAC and its Residential Capital LLC mortgage unit to reduce the company's outstanding debt and raise capital hasn’t attracted enough participation." This was due in part because Cerberus had raised the credit requirements for car loans so high, virtually eliminating leasing, that they have been responsible for a sizable chunk of lost sales at GM due to customers inability to secure financing, in order to pressure GM into selling or trading their remaining stake in GMAC.<12> GM stands to write-off over a billion dollars in lost residuals – which they paid up front to GMAC. GMAC's exposure to the gap in residual values is around $3.5 billion.<13>

In December 2008, Cerberus subsequently informed GMAC’s bondholders that the financial services company may have to file for bankruptcy if a bond-exchange plan is not approved. The company had previously said it may fail in its quest to become a bank holding company because it lacks adequate capital.<4>

In January 2009, Merkin resigned from his chairmanship as a condition by the U.S. government.<14> Five days earlier, the Federal Reserve granted GMAC bank holding company status, so it could get access to the bailout money.<15> On December 29, 2008, the U.S. Treasury gave GMAC $5 billion from its $700 billion Troubled Asset Relief Program (TARP).

Cerberus's investments in Chrysler and GMAC totaled about 7 percent of its assets under management.<5>

At the end of May, 2009, Cerberus scaled back their ownership as a condition of the lender becoming a bank-holding company, when the bulk of GM's existing ownership stake in GMAC was placed into a trust, overseen by a trustee appointed by the Treasury, to be gradually dispersed. Cerberus distributed the majority of its stake in GMAC to its investors.<16> The Federal Deposit Insurance Corporation (FDIC) gave GMAC access to the Temporary Liquidity Guarantee Program that allows companies to borrow money at lower interest rates. The initiative was created in October, 2008 to help banks borrow money by promising to repay investors if the banks defaulted. The U.S. Government also waived a rule that would restrict the amount of loans that GMAC could make to Chrysler's customers and dealers because both firms are owned in part by Cerberus Capital Management.<17>