Turnaround for Big Three automakers? Not so fast

From CNNMoney.com:

One year ago, the U.S. auto industry faced the worst crisis in its history.

Chrysler Group filed for bankruptcy on April 30, the same week that GM announced a plan that put it on the path toward its own bankruptcy a month later. Ford Motor (F, Fortune 500) had just reported huge losses.

So by comparison, conditions for Detroit's Big Three today represent an almost shocking turnaround.

Ford just reported a profit of $2.1 billion. While GM has yet to report a profit, the company managed to cough up enough cash to make an early repayment of $5.8 billion in loans to the U.S. Treasury.

And Chrysler Group just reported that despite another loss, it is no longer burning through its cash reserves.

But many experts still think it's too soon to call a turnaround in the domestic auto industry.

GM to Announce It Will Pay Back Government Loans Soon

Tomorrow, General Motors is supposed to announce its plan for repayment of government bailout loans, something they have been promising for months. As this USA Today article explains, the recovering auto manufacturer still owes money to the U.S government as well as the Canadian government, in the amount of $5.8 billion.

CEO Ed Whitacre is set to announce the payment at GM's plant in Fairfax, Kansas assembly plant. He'll then fly off to Washington to meet with House Speaker Nancy Pelosi and Michigan's Congressional delegation, The Detroit Free Press says.

Anyone who takes the repayment as a sign that business is completely back on track may want to pause before taking a victory lap.

The $4.7 billion check going to the U.S. Treasury and the $1.1 billion check going to the Canadian governments comes directly out of an escrow fund the two governments set up for the automaker when it was coming out of bankruptcy. The automaker was required to pay back that money by June.

And repaying the loans doesn't mean the automaker is free from government ownership: The U.S. still has a 60.1% stake in GM.

Top 10 Tax Stories of 2009

Now that the year 2010 has begun, I figured it would be interesting to look back at the most popular tax stories covered in my blog last year. Listed below are the top 10 tax stories of 2009, along with links to the various entries I posted on each topic. If you can think of another story that should be on the list, then send me a message on my Twitter profile.

1. The Housing Marketing and Homebuyer's Credit

The U.S. housing market keeps financial bloggers – like myself – captivated throughout the year. Back in early February, newly inaugurated President Obama launched a $75 billion foreclosure rescue plan to help American’s stay in their homes. However, foreclosures continued to trouble the country and drastically reduce home values across the country. In January the housing market began to show signs of recovery, and as the November 30^th deadline for the first-time homebuyers credit loomed, home sales rose to a two-year high. However, before it expired Congress passed the Worker, Homeownership, and Business Act that extended the credit, and also created a lesser credit for taxpayers seeking to purchase a second home.

2. Auto Bailouts, Cash for Clunkers, and Special Deductions

Early in 2009 there was criticism of Obama’s plan to help General Motors and Chrysler stay afloat. It was even reported that taxpayers could lose up to $80 billion dollars in the automobile industry bailouts. However, taxpayers seem to forget about their concerns when Congress launched the Cash for Clunkers program, that gave Americans a credit to trade in old gas guzzlers for new, energy efficient vehicles. Even though the enormously popular program expired, there were still plenty of tax incentives to buy a car in 2009, including the ability to deduct sales tax paid on new vehicle purchases.

3. Joe Francis' Tax Problems

2009 was the year of celebrity tax problems. From former boy band member Lance Bass, to actor Nicolas Cage, to California's Governor Arnold Schwarzenegger, no one was exempt from having to pay the taxman. However, one celebrity tax evader seemed to generate more media attention than the rest, Joe Francis (creator of the Girls Gone Wild pornographic video series). Initially Francis blamed his financial woes on former employees, but later in the year he grabbed headlines again with his intent to sue the IRS.

4. Health Care Reform

Along with many other tax bloggers, I have discussed the topic of health care reform on my blog dozens of times throughout 2009. Improving the country’s health care was one of Obama’s campaign promises and is one that has captured the attention of Americans. While we will have to wait until Congress returns from their winter break to see if any legislation becomes law, you can check out this entry on the House of Representative’s Paying for the Affordable Health Care for America Act, or this entry explaining the Senate’s Patient Protection and Affordable Care Act.

5. California's Budget Problems

Between furlough days, and tax increases, California’s budget problems have become one of the major tax stories of the past year. In February the state legislators passed a budget, with billions of dollars in spending cuts, and over $12 billion in new state tax increases. Unfortunately, the cuts – especially furlough days – have had a drastic affect on Sacramento’s economy, where many of the capitol city’s workers are employed by the State. Additionally, later in the year it was reported that California’s revenue is falling short of what was expected, which will undoubtedly lead to budget problems in 2010.

6. USB Settlement and Taxpayer Amnesty Program

Shortly after taking office President Obama announced his intention to crack down on offshore tax evaders, and his administration certainly delivered. After months of negotiations, the U.S. Treasury Department reached a deal with UBS – the largest Swiss Bank – to turn over the names of thousands of taxpayers that had illegally avoided paying income taxes. The IRS then created an amnesty program allowing taxpayers to turn themselves in to avoid harsher punishment.

7. Ongoing Unemployment Rate Increases

Unfortunately, high unemployment rates have been an ongoing problem in 2009. In November, President Obama even announced that there would be even more job losses before the unemployment rates would improve. The Obama administration does assert that their programs have helped saved nearly 700,000 jobs this year. However, in December a study from UCLA suggested that unemployment rates could stay above 10% throughout 2010.

8. TARP Funds, Executive Bonuses, and Repayment

Early in 2009, taxpayers across the country were angered upon reports that AIG, a company that had recently received billions of dollars through the TARP Program, was giving out million dollar bonuses to dozens of executives. The U.S. Senate even considered taking action such as a new bonus tax. However, as the year continued the TARP Program began to create positive headlines when in June ten banks began paying the federal government back. Later in December, Bank of America even announced its intentions to repay TARP funds it had received.

9. Tax and Spending Protests

On April 15^th, thousands of American taxpayers reportedly participated in the T.E.A. parties. Afterwards the GOP was quick to plan additional protests. Then, on July 4^th dozens of taxpayer protests took place across the country, and months later in September thousands of taxpayers marched to the U.S. Capitol to protest the federal government’s spending.

10. Lack of Action on the Estate Tax

Towards the end of the year the estate tax became a very popular topic in the tax blogosphere. As I explained in this blog entry, Congress failed to pass any legislation on the estate tax, meaning it will not be in effect for the year 2010. However, on January 1^st, 2011 it will return at rates higher than in the early 90’s. Although the House of Representatives passed legislation creating a permanent solution, the Senate did not follow suit. As the year came to an end, there were even reports of ill taxpayers clinging to life, while their families debated the tax consequences of keeping them on life support for a few extra days.

Taxpayers Face Heavy Losses on Auto Bailout

A new report coming from a congressional oversight panel suggests that a majority of the $81 billion given in the auto bailouts last year may never get paid back. This means that U.S. taxpayers will have taken a decent loss in order to keep the American auto industry from collapsing.

The Congressional Oversight Panel did not provide an estimate of the projected loss in its latest monthly report on the $700 billion Troubled Asset Relief Program. But it said most of the $23 billion initially provided to General Motors Corp. and Chrysler LLC late last year is unlikely to be repaid.

"I think they drove a very hard bargain," said Elizabeth Warren, the panel's chairwoman and a law professor at Harvard University, referring to the Obama administration's Treasury Department. "But it may not be enough."

The prospect of recovering the government's assistance to GM and Chrysler is heavily dependent on shares of the two companies rising to unprecedented levels, the report said. The government owns 10 percent of Chrysler and 61 percent of GM. The two companies are currently private but are expected to issue stock, in GM's case by next year.

The shares "will have to appreciate sharply" for taxpayers to get their money back, the report said.

For example, GM's market value would have to reach $67.6 billion, the report said, a "highly optimistic" estimate and more than the $57.2 billion GM was worth at the height of its share value in April 2008. And in the case of Chrysler, about $5.4 billion of the $14.3 billion provided to the company is "highly unlikely" to ever be repaid, the panel said.

Continued at APNews.MyWay.com…

Toyota to End Calif. Joint Venture with GM

Just last week I posted a blog entry discussing how California lawmakers were struggling to find a way to save the State’s last remaining auto plant. However, earlier today I came across this Associated Press article published by the SacBee.com announcing that Toyota Motor Corporation has indeed decided to liquidate its joint venture with General Motors. For those of you who do not recall, the plant assembled vehicles for both Toyota and GM. However, just because Toyota is pulling out does not mean the factory will close, but it does not give GM a short time frame to decide the fate of the factory and the 6,400 California taxpayers it employs. Check out a clip from the AP story below, or check out the full article below.

Toyota Motor Corp. has decided to liquidate its stake in a California manufacturing plant that it jointly operated with General Motors, a Japanese news agency reported Thursday.

The Japanese carmaker will begin negotiating with the "Old GM" starting next week, Kyodo News reported, citing unnamed company officials.

Toyota spokesman Mike Goss would not confirm that the Japanese automaker had made a final decision on the fate of Fremont, Calif.-based New United Motor Manufacturing Inc., also known as NUMMI. Goss said Toyota will begin negotiations with the GM officials about the plant and added that the company is conducting an "extensive review" of its production needs.

A GM spokeswoman was not immediately available to comment.

Nummi's fate was thrown into question last month when GM announced it was withdrawing from the 50-50 joint venture. GM emerged from bankruptcy protection shortly after the announcement and the company's stake in NUMMI is now part of Motors Liquidation Co. - also known as Old GM - where it will be liquidated under court supervision.

The NUMMI plant, established in 1984, employs 4,600 workers and makes the Pontiac Vibe station wagon for GM, and the Corolla compact car and Tacoma pickup truck for Toyota.