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Reports: GM To Repay U.S., Canadian Loans This Week - Update

April 20, 2010, Tuesday, 02:56 GMT | 21:56 EST | 06:26 IST | 08:56 SGT

(RTTNews) - Automaker General Motors Co. plans to repay the balance of its loans from the U.S. and Canadian governments this week, according to media reports on Monday. The automaker is expected to pay off $4.7 billion to the U.S. Treasury and the $1.1 billion it borrowed from the Canadian and Ontario governments, well ahead of a June 2010 deadline. The repayments will not affect the equity stakes held by the United States and Canada.

GM's chief executive, Edward Whitacre Jr., is reportedly expected to announce the repayment on April 21, Wednesday, during a visit to the company's assembly plant in Kansas City, Kansas. Whitacre will meet with House Speaker Nancy Pelosi and the Michigan congressional delegation in Washington later in the day.

Under terms of a $50 billion bailout that the automaker received from the Treasury starting last December, GM agreed to repay the government in the form of a $6.7 billion direct repayment and a 60% equity stake. The Treasury plans to start selling its equity stake in the automaker after GM launches an initial public offering of stock.

GM originally had until 2015 to pay off its loans, but in November, the company's former Chief Executive Frederick "Fritz" Henderson promised to repay the money by mid-2011. While announcing the results of GM's new operations for the period after emerging from bankruptcy in July 2009, the company's vice chairman and chief financial officer, Chris Liddell, said the company remains committed to repaying the loans by June 2010 at the latest.

The Detroit, Michigan-based company has already made payments of $1 billion to the U.S. and $200 million to Canada in December 2009 and March 2010.

The loan repayment is part of the company's accelerated plan to exit the U.S. Government's investments under the Troubled Asset Relief Program or TARP. GM, which emerged from bankruptcy in July 2009, intends to repay the loans as it will help the company to come out of government control, including pay restrictions. It will also use the move to highlight its steps toward issuing shares to the public.

The company also believes repaying what is left of its $6.7 billion U.S. Treasury loan is a critical step toward winning back U.S. customers, who were turned off by the bailout. Sales at Chrysler LLC, which also received federal money, have suffered as well. Meanwhile, Ford Motor Co. (F) has capitalized on its status as the only Detroit-based car maker to avoid bankruptcy protection.

GM's loan repayment will be made with money from an escrow account that was created when the company emerged from bankruptcy protection last summer. The company said earlier in April that it has $12.5 billion in that account at the end of 2009.

In early April, the automaker reported a net loss of $4.3 billion for the nearly six-month period since it emerged from bankruptcy protection in July 2009 and said it still sees a chance of achieving profitability in 2010. The company also said it has completed fresh-start accounting, which lays the groundwork for GM to launch an initial public offering that would reduce the U.S. government's stake in the automaker.

Also in early April, GM said its U.S. vehicle sales for the month of March increased 20.6% to 188,546 units from 156,380 units in the same month last year. Combined sales of the four brands GM is keeping - Buick, Cadillac, Chevrolet and GMC - rose 43.3% to 185,406 units in March from 129,368 units in March last year. For the first quarter, GM's sales grew 15.6% to 477,322 units from 412,903 units in the same period last year.