Treasury needs an exit plan for GM, Ally: watchdog

WASHINGTON Tue Jul 10, 2012 2:07pm EDT

Related Topics

WASHINGTON (Reuters) - Market conditions have slowed the U.S. Treasury's progress in selling its stakes in General Motors Co and the automaker's one-time consumer financing arm, but a solid exit plan is needed, a government watchdog said on Tuesday.

Christy Romero, special inspector general for the government's financial-crisis-era corporate bailout initiative told a congressional committee that it could take a number of years for taxpayers to simply break even on the investments in GM and Ally Financial, formerly known as GMAC.

Romero said in testimony for a subcommittee of the Republican-led House Oversight Committee that previous government audits had raised the prospect that Treasury could sell shares below break-even prices.

"Although that would result in taxpayers getting out of these investments more quickly, it would decrease taxpayer return," Romero said. "Treasury should develop a concrete exit plan for GM and Ally."

A Treasury spokesman said it would "continue to balance exiting as soon practicable and maximizing value for taxpayers."

Treasury, which invested more than $50 billion in GM via the Troubled Asset Relief Program, has not sold any shares since 2010. It would need to sell its remaining stake of 500 million shares at more than $52 each to break even on the bailout.

Taxpayers are expected to recoup more money from the auto bailout than first thought, but will still likely lose billions on the deal.

On Tuesday, GM stock traded just above $20, down sharply from its initial public offering price of $33 in November 2010.

Ally filed its intent in March 2011 to seek a public share offering but has not yet taken that step.

Even if Treasury sells a large amount of its Ally stock in an IPO, it would still take a year or more to dispose of its ownership stake, Romero said, citing a government analysis.

The government injected $17 billion into the lender through multiple bailouts during the financial crisis and now owns about 74 percent of the company.

Taxpayers still hold about 30 percent of GM equity, roughly half of their initial interest coming out of the automaker's bankruptcy in 2009.

DELPHI PENSIONS

Under pressure from Republican lawmakers, three former Obama administration officials instrumental to the auto rescue agreed on Tuesday to be questioned by Romero and her team about certain union pensions and the bailout after refusing to do so for months.

Romero is looking at whether the White House and Treasury Department pushed GM to shore up certain ailing union pension plans at troubled auto-parts maker Delphi Corp, while nonunion employees had to settle for reduced benefits as a result of the supplier's bankruptcy.

Republicans have long complained that the government-sponsored bailout and bankruptcy of GM, rival automaker Chrysler and suppliers were at least partly aimed at salvaging union jobs in politically crucial and economically hard-hit Michigan and Ohio.

President Barack Obama has campaigned heavily in those states on a signature economic policy achievement -- the revival of U.S. auto manufacturing due to his intervention following its near-collapse soon after he took office.

Organized labor has been a cornerstone Obama constituent and a prime target for Republicans this election season. Some Republicans have accused mainly public-sector unions of sapping municipal budgets with bloated contracts and benefits.

'TOP UP' PAYMENT

Unable to meet its obligations, bankrupt Delphi turned over its underfunded pension plans covering some 70,000 workers and retirees in 2009 to government insurers, which would pay out benefits but at rates lower than promised.

GM agreed to add about $1 billion to accounts for 40 percent of the pension recipients, mainly hourly employees and retirees of the United Auto Workers and other smaller unions. The 20,000 nonunion salaried employees were excluded, as were some other union workers.

Investigators had tried without success to interview former Auto Task Force chief Ron Bloom, legal adviser Matthew Feldman, and member Harry Wilson about the Delphi pensions and GM's decision to "top up" certain plans, Romero said.

The task force disbanded after GM and Chrysler emerged from bankruptcy with taxpayer capital, scaled-back operations and thousands fewer workers.

When asked why they initially refused to cooperate with the special inspector general, Bloom, Feldman and Wilson cited a combination of time constraints and the fact that they did not believe there was anything more to add to the volumes of audits, reports and recorded testimonials.

According to Feldman and a Government Accountability Report presented at the hearing, GM's decision to "top up" underfunded pension plans stemmed from a 1999 agreement with the United Auto Workers and other unions when Delphi was spun off from the automaker.

Those deals were preserved during GM and Delphi's bankruptcies.

The auto task force concluded that GM's decision to honor the agreement was prudent, Feldman said. "We believed doing so would protect" GM and taxpayers' investment in the company, he said.

Bloom, a former investment banker and union negotiator, said in his testimony that he had helped prepare and deliver responses to "countless inquiries" about watchdog and congressional audits and in investigations of the auto bailout.

Wilson, a former private equity investor, lifelong Republican, and candidate for New York State comptroller in 2010, said the Treasury Department had "provided general input but not specific decisions" about GM's business.

GM has said the government never pressured it on business decisions. (Additional reporting by Rachelle Younglai; Editing by Lisa Von Ahn and Leslie Adler)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
mulholland wrote:
This announcement alone should drive the GM share price down to $9.

Warren Buffet’s proteges are a bunch of Rubes with money burning a hole in their pockets. Buy high. Sell low.

Jul 10, 2012 2:30pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.