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DONNA HARRIS

GM's chicken-and-egg problem exposed by senator

Donna Harris covers automotive retailing for Automotive News.
UPDATED: 7/23/10 11:13 a.m. ET Don't look now, but a U.S. senator is trying to place a speed bump in General Motors' path as it prepares to plunk down $3.5 billion for subprime lender AmeriCredit Corp.

It seems Sen. Chuck Grassley views this as a waste of taxpayer dollars. The Iowa Republican isn't questioning the deal itself, which many believe makes good business sense.

He just thinks GM should get its priorities straight. After all, GM is 61 percent government-owned and ought to consider selling off the government's stake before it starts throwing money around on finance companies.

“If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first,” said Grassley.

The senator has asked a government watchdog to investigate the purchase.

The trouble is, GM's up against one of those chicken-and-egg conundrums. Sure, it could forget the purchase in order to save the $3.5 billion. But that might weaken its planned initial public offering, the vehicle that could free it from government ownership. Or it could blow the money on the finance company now and strengthen its IPO, which stands to raise a lot more than $3.5 billion.

What do you say, senator? Pay me now or pay me later?

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