An Update on TARP Support for the Domestic Automotive Industry

The Congressional Oversight Panel’s January oversight report, “An Update on TARP Support for the Domestic Automotive Industry,” found that, although it remains too early to tell whether Treasury’s intervention in the U.S. automotive industry will prove successful, the government’s ambitious actions appear to be on a promising course.

Even so, the companies that received automotive bailout funds continue to face uncertain futures, taxpayers remain at financial risk, concerns remain about the transparency and accountability of Treasury’s efforts, and moral hazard lingers as a long-run threat to the automotive industry and the broader economy.

Executive Summary*

Since the Panel‟s last comprehensive review of TARP support for the domestic automotive industry in September 2009, Treasury‟s automotive investments have, in financial terms, starkly improved. As of September 2009, the Congressional Budget Office (CBO) estimated that taxpayers would lose $40 billion on their automotive investments.

Today, CBO has reduced its loss estimate to $19 billion, and the three largest recipients of automotive bailout funds – General Motors (GM), Chrysler, and GMAC/Ally Financial – all appear to be on the path to financial stability.

While it remains too early to tell whether Treasury‟s intervention in and reshaping of the U.S. automotive industry will prove to be a success, there can be no question that the government‟s ambitious actions have had a major impact and appear to be on a promising course.

Even so, the companies that received automotive bailout funds continue to face uncertain futures, taxpayers remain at financial risk, concerns remain about the transparency and accountability of Treasury‟s efforts, and moral hazard lingers as a long-run threat to the automotive industry and the broader economy.

Treasury is currently unwinding its stakes in GM, Chrysler, and GMAC/Ally Financial. Of those companies, GM is furthest along in the process of repaying taxpayers. It conducted an initial public offering (IPO) on November 18, 2010, and Treasury used the occasion to sell a portion of its GM holdings for $13.5 billion.

This sale represents a major recovery of taxpayer funds, but it is important to note that Treasury received a price of $33.00 per share – well below the $44.59 needed to be on track to recover fully taxpayers‟ money. By selling stock for less than this break-even price, Treasury essentially “locked in” a loss of billions of dollars and thus greatly reduced the likelihood that taxpayers will ever be repaid in full.

Treasury has explained its decision to sell at a loss by saying that it wished to unwind government ownership of the automobile industry as quickly as possible. This justification may very well be reasonable, but it is difficult to evaluate. Because Treasury has cited different, conflicting goals for its automotive interventions at different times – saying, for example, that it wished to save American jobs, to produce the best possible return to taxpayers, or to return the company to private ownership as rapidly as possible – it is difficult for the Panel or any outside observer to judge whether Treasury‟s results in fact qualify as successful.

The other major automotive manufacturer to receive government assistance, Chrysler, remains a private company. Because Treasury has already absorbed $3.5 billion in losses on loans made to the pre-bankruptcy Chrysler, the prospect for a full recovery of taxpayers‟ money depends upon Treasury‟s ability to sell its ownership of Chrysler at a profit. However, as Treasury owns only 10 percent of the company‟s stock, it has very limited ability to influence the timing of an eventual public offering.

The remaining 90 percent of Chrysler was parceled out to several other parties, including the Italian automotive manufacturer Fiat, through the bankruptcy process – but while this approach may have saved Chrysler from liquidation, the result is that Treasury has little authority to act in taxpayers‟ interests.

Another source of concern is Treasury‟s hasty unwinding of its position in Chrysler Financial, in which taxpayer returns appear to have been sacrificed in favor of an unnecessarily accelerated exit, further compounded by apparently questionable due diligence.

The final major recipient of automotive-related aid, GMAC/Ally Financial, represents a curious case. GMAC/Ally Financial is a financial company, not a manufacturer; it operates in many fields entirely unrelated to the automotive industry. Traditionally, however, the company has provided the bulk of financing to GM car dealerships, as well as significant financing to individual purchasers of GM vehicles. As such, Treasury saw the survival of GMAC/Ally Financial as critical to its broader automotive rescue.

Since the Panel‟s report on GMAC/Ally Financial in March 2010, the company has experienced three consecutive quarters of profits and has reduced the risk in its mortgage portfolio. Even so, taxpayers likely will not begin to recover their investment until GMAC/Ally Financial conducts an IPO.

Treasury has had significant leverage over the IPO‟s timing due to its preferred stock holdings, but regrettably, Treasury has been inconsistent in acknowledging this leverage. Treasury‟s reluctance to recognize its own influence may represent an effort to claim a coherent “hands off” shareholder approach, despite the unique circumstances that apply to GMAC/Ally Financial.

The “hands off” approach may in itself raise questions. Treasury has asserted that, even if one of the automotive companies had announced an entirely unrealistic business plan, Treasury would not have intervened. In more practical terms, Treasury declined to block GM‟s purchase of AmeriCredit, a subprime financing company, even though AmeriCredit may ultimately compete against GMAC/Ally Financial and thus damage that company‟s ability to repay taxpayers.

Although Treasury‟s “hands off” approach may have reassured market participants about the limited scope of government intervention, it may also have forced Treasury to leave unexplored options that would have benefited the public.

Treasury is now on course to recover the majority of its automotive investments within the next few years, but the impact of its actions will reverberate for much longer. Treasury‟s rescue suggested that any sufficiently large American corporation – even if it is not a bank – may be considered “too big to fail,” creating a risk that moral hazard will infect areas of the economy far beyond the financial system.

Further, the fact that the government helped absorb the consequences of GM‟s and Chrysler‟s failures has put more competently managed automotive companies at a disadvantage. For these reasons, the effects of Treasury‟s intervention will linger long after taxpayers have sold their last share of stock in the automotive industry.

*The Panel adopted this report with a 4-0 vote on January 12, 2011.

 

Conclusions and Recommendations

The financial crisis laid bare the challenges facing the domestic U.S. auto industry. The cumulative impact of a series of strategic and competitive missteps over the preceding decade came to the fore in the fall of 2008. While the Panel has previously questioned the government‟s perception of its policy choices during various stages of the crisis, there is little doubt that in the absence of massive government assistance, GM, Chrysler, and GMAC/Ally Financial faced the prospect of bankruptcies and potential liquidation, given the apparent dearth of available financing from the private sector.

In the context of a fragile economy and the financial crisis (which severely restricted both corporate and consumer credit), the failure of these companies could have had significant near-term consequences in terms of job losses and the performance of the broader U.S. economy.

Although the assets of GM and Chrysler (plants and equipment, employees, brand recognition) would have had value to other firms over the longer term, it was in the context of these adverse near-term consequences that both the Bush and Obama Administrations provided assistance to the auto sector.

The Panel takes no position on the decision to support the auto industry, a topic addressed in our September 2009 report. All told, the Bush and Obama Administrations provided $81.4 billion in assistance to these three companies (as well as $3.5 billion for auto suppliers). Unlike assistance to the banks, much of the government‟s investment still hangs in the balance, with 66 percent of overall assistance still outstanding. Treasury is now on course to recover the majority of its automotive investments within the next few years, but the impact of its actions will reverberate for much longer.

Treasury‟s rescue suggested that any sufficiently large American corporation may be considered “too big to fail,” broadening moral hazard risk from its TARP rescue actions beyond the financial sector. Further, the fact that the government helped absorb the consequences of GM‟s and Chrysler‟s failures has put more competently managed automotive companies at a disadvantage.

Still, while the government perhaps set a dangerous precedent of expanding the notion of “too-big-to-fail” to the non-financial sector, the terms on which this support was provided offered considerably less comfort to legacy shareholders and creditors, at least to those of Chrysler and GM, than it did to the equity and debt holders of rescued financial firms.

While the outlook for the return on taxpayer funds has improved considerably over the past 12 months, there is still a long road ahead, particularly for GMAC/Ally Financial and Chrysler. Improving industry fundamentals – signified by GM‟s recent IPO – highlight a more hospitable backdrop since the Panel‟s last report on the auto sector in September 2009.

This backdrop corresponds with improved operating fundamentals, as GM and Chrysler have shed costs and positioned themselves to produce profits at much lower levels of output. Market shares have generally stabilized, as has vehicle pricing since manufacturers no longer need to offer generous incentives to reduce overladen inventories.

GMAC/Ally Financial has benefited from an improving backdrop for mortgage assets, allowing the firm to reduce the crushing overhang of its mortgage exposure, as well as reverse at least a portion of prior asset write-downs.

Against this improving backdrop, GM has reported improving earnings in each of the past four quarters. GMAC/Ally Financial is now in the black after reporting losses throughout 2009, and Chrysler‟s performance has improved materially with the help of its alliance with Fiat. (While operationally profitable, interest payments on TARP loans have prevented a bottom-line return to profitability at Chrysler.)

Treasury‟s calculations of potential taxpayer losses of $14.7 billion on total assistance of $81.3 billion to these three firms could ultimately prove conservative, but significant risks remain, given that the amount recovered will depend heavily on public market valuations of each firm‟s shares into 2011 and beyond.422 Below is a brief summary of the status of Treasury‟s investments in GM, Chrysler, and GMAC/Ally Financial.

  • GM: Of the $49.9 billion in total assistance, the government has thus far recouped $22.7 billion.423 As of December 31, 2010, the government‟s unsold stake is valued at $18.4 billion, which would represent a total taxpayer loss of $7.9 billion.
  • Chrysler: Only $2.2 billion in total assistance has been recouped,424 and $3.5 billion in loans are considered a loss. However, the improved financial performance of the company indicates that Treasury‟s remaining loans to Chrysler may in fact be ultimately recovered. As discussed in Section E, for the government to recoup losses already incurred to Old Chrysler, the equity value of a potential IPO would have to exceed $14.5 billion.
  • GMAC/Ally Financial: Significant equity investments in GMAC/Ally Financial imply greater risk and more uncertainty in the lead-up to a potential IPO in 2011, although the improved operating performance – similar to that of GM and Chrysler – bodes well for a meaningful return on the $17.2 billion in total assistance to GMAC/Ally Financial. This being said, GMAC/Ally Financial is now the last TARP recipient standing – after the accelerated Citigroup exit and recent announcements about exiting AIG – for which the government has control of its exit and not articulated a clear exit strategy.

These rescue efforts by the government employed differentiated strategies with varying levels of risk to the taxpayer. While GM and Chrysler were put through bankruptcy, GMAC/Ally Financial was not, to the relative benefit of its legacy shareholders and creditors. Whereas the government shouldered the entire rescue of GM, it enlisted Fiat as a partner for Chrysler, which is a smaller and less economically significant automobile manufacturer than GM.

While the Panel has outlined various scenarios that could see taxpayers recover a meaningful amount of this assistance over the next two years, the financial returns on these investments do not tell the entire story and should not overshadow the Administration‟s broader objectives in providing assistance to the auto industry.

Unlike the intervention in the financial sector, the government in this case sought a broad restructuring of the underlying industry, and it was able to pursue this objective given its controlling stake in some of the impacted companies. Given the broader restructuring aims – as well as countering the threat of imminent and massive job losses – it is perhaps not surprising that the government has offered various benchmarks beyond a strict tally of the full return of the taxpayer‟s assistance to measure its success in this endeavor.

While senior Treasury advisor Ronald Bloom once defined success solely in monetary terms – “the greater percentage of the money that we invested that we get back, the greater success” – on other occasions Mr. Bloom and others in the Administration have cited the dual mandates of jobs preservation and effecting lasting fundamental reform of the auto sector.

As outlined in this report, there are examples of conflict – some inevitable, others not – between Treasury‟s core principles. In particular, the government has sought to present a consistent narrative of its role as a reluctant shareholder. In the case of GMAC/Ally Financial, transparency that would illustrate the unique circumstances of specific investments and explain certain actions by Treasury has sometimes been sacrificed in favor of retaining the appearance of a consistent narrative. This unnecessarily undermines the spirit of transparency critical to the effectiveness of the TARP.

Another recent example of this conflict between Treasury‟s principles involves Chrysler Financial, where meaningful incremental taxpayer returns appear to have been sacrificed in favor of an unnecessarily accelerated exit, further compounded by apparently questionable due diligence. The Panel notes that questions stemming from this transaction are not motivated by the fact that seven months following Treasury‟s exit, Chrysler Financial sold at a price that was 33 percent higher than the value of the company implied by Treasury‟s settlement price.

Rather, the government‟s due diligence on the sale of its stake to Cerberus was surprisingly limited in scope. Treasury focused on the merits of the offer at hand and apparently neglected to contemplate more favorable valuation scenarios that may have resulted from a competitive bidding process of eager strategic buyers looking to acquire and invest in the Chrysler Financial platform. Given the apparent success of the longer-term investment mindset that has characterized the government‟s management of its AIG and GMAC/Ally Financial investments, Treasury‟s haste to exit Chrysler Financial is perplexing.

A final tally on the return of taxpayer assistance and a report card on longer-term reform efforts remain premature. Early returns indicate that the government‟s intervention in the auto sector – leaving aside any assessment of the relative merits of providing that assistance in the first place – has been surprisingly successful, both in terms of financial returns from assistance and the rebound in the companies‟ performance. The Panel notes that GM and Chrysler are now adding jobs after their initial downsizings.

However, as noted, a more robust scorecard, one that weighs the positives from government intervention, such as the near-term preservation of jobs and prevention of a deeper contraction in the economy, versus the negatives, including the investment of substantial taxpayer dollars and the precedent set by government intervention into the private sector, is required to evaluate fully the government‟s actions.

Nonetheless, this longer-term assessment should not obscure the near-term focus on recovering as much value as possible for the taxpayer. At the same time, the Panel recognizes that absent sustainable reform that produces a smaller auto industry subject to the discipline of the private capital markets, improved returns on taxpayer assistance could mask longer-term risks.

Likewise, the relatively improved outlook should not overshadow serious questions that prevent a more transparent assessment of the government‟s efforts. These questions arise from the fact that, having intervened on a massive scale and outlined sweeping mandates for the reform of the industry, the government – by its own account – then chose largely to retreat to the sidelines, performing run-of-the-mill oversight of its investments and leaving the heavy lifting to the government‟s designees on the companies‟ boards of directors.

Treasury has consistently (and often vociferously) asserted that it will not interfere or otherwise seek to influence the strategic management of the companies in which it holds a stake. The Panel recognizes the importance of a hands-off approach to day-to-day business operations and recognizes that crossing this line in certain instances can raise troubling questions regarding the government‟s role in the private sector. However, many would argue that this line had long since been crossed, given the government‟s initial decision to provide assistance to the auto industry, and to pretend otherwise today begs credulity.

In the case of GMAC/Ally Financial, the Panel recommended previously that Treasury explore the possibility of value-enhancing strategic arrangements that would seek to maximize the government‟s aggregate stake in both GM and GMAC/Ally Financial. Subsequently, rather than seeking a closer relationship with GMAC/Ally Financial, GM has chosen to build its own auto financing subsidiary via the acquisition of AmeriCredit.

While such a move may seemingly make strategic sense for GM, it is not clear if the value to the government, as a shareholder in GM, outstrips the potential negative impact of this acquisition to the government‟s stake in GMAC/Ally Financial. Treasury‟s deliberate refusal to take a portfolio investment approach to managing its holdings across the auto sector appears to be inconsistent with the rationale for its decision to rescue GMAC/Ally Financial, which was to help GM continue to finance car sales, particularly to its dealership network.

The Panel recognizes two potential positive developments from Treasury‟s hands-off approach. Namely, GM‟s efforts to establish its own captive auto finance subsidiary will likely improve the competitive dynamics in this market by reducing the company‟s reliance on GMAC/Ally Financial.

Further, any residual moral hazard in the marketplace related to the perception that GMAC/Ally Financial is too interconnected with GM to be allowed to fail would likely be mitigated by GM‟s development of its own captive financing subsidiary. The Panel makes the following recommendations:

  • The Administration should enhance disclosure in the budget and financial statements for the TARP by reporting on the valuation assumptions (“credit reform” subsidy rates) for the individual companies included in the overall subsidy rate for the AIFP.
  • The Panel recognizes that it is in the private sector‟s and the government‟s interest for Treasury to exit its investments as soon as practicable. However, Treasury should be cognizant that this may not in all instances be in the taxpayer‟s best interest. The Panel urges Treasury to consult independent third parties to assess these determinations in the future to identify instances where a longer investment horizon may meaningfully improve the outlook for the taxpayer‟s return on its investment.
  • Treasury sought to assure the Panel during its February 2010 hearing on GMAC/Ally Financial that legacy private sector stakeholders in the company would not see any return until and if the U.S. taxpayer recoups its entire investment. The Panel recommends that Treasury expand on this assertion, clarifying its approach to the treatment of legacy shareholders in GMAC/Ally Financial as the government‟s exit plan moves forward. Aside from the consequences to the taxpayer‟s interest, clarifying the treatment of legacy shareholders will help preserve market discipline going forward.
  • Given the scale of government intervention and the desire not to repeat this episode, it may be in the taxpayer‟s interest that Congress commission independent researchers to periodically assess the long-term fallout from the collapse of the auto industry and the subsequent government intervention, including the risk to taxpayers stemming from future disruptions to the auto market from economic, credit market or other potential threats. Related to these efforts, Congress should also follow up by contracting with independent researchers and market analysts to develop more credible estimates of the impact of the bailout of GM, GMAC/Ally Financial, and Chrysler on economic performance and employment.

 

Additional Views

A. J. Mark McWatters and Professor Kenneth R. Troske

We concur with the issuance of the January report and offer the additional observations below. We appreciate the efforts the Panel and staff made incorporating our suggestions offered during the drafting of the report. We wish to make the following points.

In the closing days of 2008 when GM, Chrysler, and GMAC/Ally Financial faltered, the American taxpayers – not the Department of Treasury – stood as the last safehaven for these distressed institutions. In return for their generosity the CBO estimates that the taxpayers stand to lose approximately $19 billion on their investments.

This is real money, enough to finance the construction of over four Nimitz-class aircraft carriers (at $4.5 billion each) or fund approximately 25 years of NIH-sponsored breast cancer research (at $765 million per year).

Treasury‟s primary role in the restructuring of GM, Chrysler, and GMAC/Ally Financial was to act as a funding conduit for the taxpayer sourced capital infusions. These institutions have, not surprisingly, performed reasonably well over the past several months due to the strength of their foreign markets, the recovery of their domestic markets, the replacement of their directors and senior management, the deleveraging of their balance sheets, the renegotiation of their collective bargaining agreements, the recovery of the capital markets, the tepid recovery of the general economy, and, of course, the “gift” of $19 billion or so of taxpayer funds. It remains to be seen, however, if these companies can remain on the path to financial recovery and independence from taxpayer-sourced subsidies.

The Panel concludes in the report: “there is little doubt that in the absence of massive government assistance, GM, Chrysler, and GMAC/Ally Financial faced the prospect of bankruptcies and potential liquidation.”

While bankruptcy did follow for GM and Chrysler and probably should have followed for GMAC/Ally Financial, we remain skeptical that the companies would have been liquidated and sold off for scrap value absent direct intervention by the government. The brisk turn-around of the three institutions over the past two years indicates that even in the last quarter of 2008 substantial inherent value existed within each company.

Despite claims to the contrary, we still have trouble concluding that Chevrolet, Cadillac, Buick, GMC trucks, and Jeep, as well as GMAC/Ally Financial‟s auto finance business, among others, were worth next to nothing in the closing days of 2008 and, but for the taxpayer-funded bailouts, would have failed and left hundreds of thousands temporarily unemployed.

It would have been preferable for these institutions to have been reorganized by private sector participants, with, perhaps, debtor-in-possession financing guaranteed to a limited extent by the government. It is difficult to accept that private sector strategic buyers, private equity firms, hedge funds, and sovereign wealth funds were not willing and able to orchestrate the successful reorganizations or restructurings of the three distressed companies.

Once the government entered the picture and signaled its intent to bail out the institutions with its unlimited taxpayer-financed checkbook, it is hardly surprising that private sector participants demurred. Under such circumstances, it is not possible for even the most sophisticated, motivated, and financially secure of private sector firms to prevail.

The Panel states in the report:

Treasury is now on course to recover the majority of its automotive investments within the next few years, but the impact of its actions will reverberate for much longer. Treasury‟s rescue suggested that any sufficiently large American corporation – even if it is not a bank – may be considered “too big to fail,” creating a risk that moral hazard will infect areas of the economy far beyond the financial system. Further, the fact that the government helped absorb the consequences of GM‟s and Chrysler‟s failures has put more competently managed automotive companies at a disadvantage. For these reasons, the effects of Treasury‟s intervention will linger long after taxpayers have sold their last share of stock in the automotive industry.

The Panel states in the report:

These favorable events, however, must be thoughtfully balanced against the moral hazard risks created by the taxpayer‟s bailout of the three institutions and the ongoing implicit guarantee of the government. By bailing out GM, Chrysler, and GMAC/Ally Financial, the government sent a powerful message to the marketplace – some institutions will be protected at all cost, while others must prosper or fail based upon their own business judgment and acumen. We regret that Treasury has focused solely on the apparent success of the GM IPO in assessing the rescues of the three institutions to the distinct exclusion of the moral hazard risks arising from the bailouts.

The Panel also states in the report:

As the Panel has discussed in earlier reports, the cost of any program initiated under EESA cannot be measured solely by the amount of money returned to the public coffers. The cost must also include a calculation of the risk that the American people assumed while the loans or investments were outstanding.

And it must include some accounting of the potential future effects on the industry and the wider economy, such as the heightened risk of moral hazard among American automobile companies, or among any large corporations, leading these companies and the market to assume that they have an implicit guarantee from the government (i.e., that they are “too big to fail,” or at least will receive generous government support to ease the bankruptcy process). Even if such effects cannot be determined until years into the future, their potential must be taken into account when measuring the success of the automobile programs.

In our view, the above passages represent the most significant analysis provided in the report. The TARP has all but created an expectation, if not an emerging sense of entitlement, that certain financial and non-financial institutions are simply “too-bigor too-interconnected-to-fail” and that the government will promptly honor the implicit guarantee issued for the benefit of any such institution that suffers a reversal of fortune. This is the enduring legacy of the TARP.

Unfortunately, by offering a strong safety net funded with unlimited taxpayer resources, the government has encouraged potential recipients of such largess to undertake inappropriately risky behavior secure in the conviction that all profits from their endeavors will inure to their benefit and that large losses will fall to the taxpayers. The placement of a government sanctioned thumb-on-the-scales corrupts the fundamental tenets of a market economy – the ability to prosper and the ability to fail.

Following the bailouts of GM, Chrysler, and GMAC/Ally Financial and the potential loss of $19 billion or more of taxpayer-sourced funds, is it realistic to expect that the government will permit these companies to fail the next time around? We have our doubts. More significantly, the directors, managers, and employees of these institutions most likely appreciate the benefits afforded by the government‟s implicit guarantee, but it remains to be seen whether they also appreciate the attendant moral hazard risks.

Although not the subject of this report, we would be remiss if we did not note that commentators have questioned the treatment of certain classes of creditors in the GM and Chrysler bankruptcies as well as certain procedures adopted by and rulings of the bankruptcy courts.

Regarding this matter, Barry E. Adler, the Petrie Professor of Law and Business, New York University, offered the following testimony to the Panel:

The rapid disposition of Chrysler in Chapter 11 was formally structured as a sale under §363 of the Bankruptcy Code. While that provision does, under some conditions, permit the sale of a debtor‟s assets, free and clear of any interest in them, the sale in Chrysler was irregular and inconsistent with the principles that undergird the Code.

The most notable irregularity of the Chrysler sale was that the assets were not sold free and clear … That is, money that might have been available to repay these secured creditors was withheld by the purchaser to satisfy unsecured obligations owed the UAW. Thus, the sale of Chrysler‟s assets was not merely a sale, but also a distribution – one might call it a diversion – of the sale proceeds seemingly inconsistent with contractual priority among the creditors.

Given the constraint on bids, it is conceivable that the liquidation value of Chrysler‟s assets exceeded the company‟s going-concern value but that no liquidation bidder came forward because the assumed liabilities – combined with the government‟s determination to have the company stay in business – made a challenge to the favored sale unprofitable, particularly in the short time frame afforded. It is also possible that, but for the restrictions, there might have been a higher bid for the company as a going concern, perhaps in anticipation of striking a better deal with workers.

Thus, the approved sale may not have fetched the best price for the Chrysler assets. That is, the diversion of sales proceeds to the assumed liabilities may have been greater than the government‟s subsidy of the transaction, if any, in which case the secured creditors would have suffered a loss of priority for their claims. There is nothing in the Bankruptcy Code that allows a sale for less than fair value simply because the circumstances benefit a favored group of creditors.

In addition, with respect to the bailout of GMAC/Ally Financial, the Panel offered the following observations in its March 2010 report:

Although the Panel takes no position on whether Treasury should have rescued GMAC, it finds that Treasury missed opportunities to increase accountability and better protect taxpayers‟ money. Treasury did not, for example, condition access to TARP money on the same sweeping changes that it required from GM and Chrysler: it did not wipe out GMAC‟s equity holders; nor did it require GMAC to create a viable plan for returning to profitability; nor did it require a detailed, public explanation of how the company would use taxpayer funds to increase consumer lending.

Moreover, the Panel remains unconvinced that bankruptcy was not a viable option in 2008. In connection with the Chrysler and GM bankruptcies, Treasury might have been able to orchestrate a strategic bankruptcy for GMAC. This bankruptcy could have preserved GMAC‟s automotive lending functions while winding down its other, less significant operations, dealing with the ongoing liabilities of the mortgage lending operations, and putting the company on sounder economic footing. ‘

The Panel is also concerned that Treasury has not given due consideration to the possibility of merging GMAC back into GM, a step which would restore GM‟s financing operations to the model generally shared by other automotive manufacturers, thus strengthening GM and eliminating other money-losing operations.

Download COP Report:  An Update on TARP Support for the Domestic Automotive Industry (PDF)(167 PAGES)

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