WASHINGTON (CN) - General Motors repaid TARP loans with other bailout funds instead of company earnings, Republican Sen. Chuck Grassley said in a letter to Treasury Secretary Tim Geithner. The Iowa senator called the maneuver an "elaborate TARP money shuffle," saying the auto maker siphoned funds from a multibillion-dollar Treasury escrow account to repay its bailout debts.
"Treasury has merely exchanged a legal right to repayment for an uncertain hope of sharing in the future growth of GM," Grassley wrote on Thursday. "A debt-for-equity swap is not a repayment."
Grassley's concern arose from a quarterly TARP oversight report issued Tuesday, which stated: "The source of funds for these quarterly [debt] payments will be other TARP funds currently held in an escrow account."
In a hearing Tuesday before the Senate Finance Committee, TARP overseer Neil Barofsky confirmed that GM was using Treasury funds to make the loan repayment. He said the government could see a huge loss from bailout funds paid to the auto industry, as the manufacturers' ability to repay depends on car sales.
"The taxpayers are still on the hook, and whether TARP funds are ultimately recovered depends entirely on the government's ability to sell GM stock in the future," Grassley wrote.
On April 21, GM announced that it repaid $6.7 billion in government loans five years ahead of schedule. The company touted the debt repayment in speeches, press releases and television commercials, the letter states.
The Treasury Department backed up the story.
"We are encouraged that GM has repaid its debt well ahead of schedule and confident that the company is on a strong path to viability," Geithner said in a statement Wednesday. "This continued progress is a positive sign for our auto investment -- not only more funds recovered for the taxpayer but also countless jobs saved and the successful stabilization of a vital industry for our country."
In his letter, Grassley asked Geithner why the agency allowed GM to use the escrow funds to repay the loan.
Grassley also asked for the amount of funds remaining in the escrow account that may be released to GM, and when such a release would occur.
Grassley quoted GM Vice Chairman Stephen Girsky, who, when asked in a television interview this week if the company was using government funds to repay government loans, said, "Well listen, that is in effect true, but a year ago nobody thought we'd be able to pay this back."
Grassley asked the Treasury Department to deliver the information by April 30.