GM named in deceptive advertising complaint filed with FTC 

A prominent conservative Washington activist think tank has filed a complaint with the Federal Trade Commission against General Motors' nationally advertised claim that it has repaid its government bailout loan "in full, with interest, five years ahead of schedule."

The Competitive Enterprise Institute (CEI) argues in its FTC filing that GM's claim is misleading to consumers, and factually inaccurate, and therefore violates the Federal Trade Commission Act.

"Most consumers would reasonably interpret GM’s ads as meaning both that GM has paid back all the money that it received from the government, and that those repayments were made with its own funds rather than with other government funds.

"Neither of these interpretations is accurate. While GM might argue that its ads are literally correct, they are deceptive within the meaning of the FTC Act because they leave a misleading impression with consumers."

The problem, according to CEI in its complaint, as well as a wide swath of financial and political analysts and media outlets, is simple: GM's repayment of one of its government loans was made with funds the company received from another government loan as part of its $49.5 billion bailout deal last year.

The bailout included $49.5 billion committed to GM through the U.S. Department of Treasury’s Automotive Industry Financing Program. The government got back from in return for the bailout a controlling 60.8 percent common equity stake in GM, plus $2.1 billion in preferred stock, and $7.1 billion in additional GM debt.

Treasury officials put $17.4 billion of the $49.5 billion in an escrow account, which required GM to obtain Treasury’s approval before making withdrawals. Since the repayment described by GM head Ed Whitacre in the television spots came from this escrow account, the government approved the withdrawal for that purpose.

In fact, Treasury Secretary Timothy Geithner issued a statement praising GM's repayment "in full" and cited it as evidence that the Obama administration's economy recovery progam was working as intended for the automaker.

CEI said in its complaint that GM's ads sought to make consumers think the company has returned to profitability when in fact it has not. (The company reported last month that it lost $4.3 billion in the second half of 2009):

"GM’s ads also leave the false impression that it is on the road to profitability, since it is now able to pay off its debts. (In public statements, GM deliberately sought to reinforce that impression by linking the “repayment” to increased sales of two cars produced by GM.)

"In reality, however, GM used taxpayer money to make the repayment -- government bailout money from the Troubled Asset Relief Program -- and it was still losing money at the time of the advertisement.

"This false impression matters to consumers, and affects their purchasing decisions, because a profitable automaker, unlike an automaker that goes out of business, can provide replacement parts for an automobile that a consumer purchased. And unlike a bankrupt automaker, it can be counted on to make good on its warranties."   

You can read the full CEI complaint here. Neither the FTC nor GM has offered any comment on the complaint.

See also Examiner editorials here and here. And CEI's Hans Bader who with CEI General Counsel Sam Kazman filed the FTC complaint, has a comprehensive assessment of the GM situation, including a bunch of links for virtually every significant turn of events since the bailouts were first proposed during the Bush administration.

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Mark Tapscott

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