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    Congressional Oversight Panel

    JANUARY

    OVERSIGHT REPORT*

    January 13,

    2011

    *Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic

    Stabilization Act of 2008, Pub. L. No. 110-343

    An Update on TARP Support for the Domestic

    Automotive Industry

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    Table of Contents

    Executive Summary .............................................................................................................4

    Section One:

    A. Introduction ..............................................................................................................7

    B. Overview of Government Intervention ....................................................................8

    1. Summary of Government Intervention in Auto Manufacturing

    and Financing Industries ..........................................................................................8

    C. Current State of the Domestic Automotive Industry .............................................20

    1. Capacity Reductions .........................................................................................20

    2. Lower Labor Costs ............................................................................................21

    3. Resiliency in Market Share ...............................................................................22

    4. Pricing ...............................................................................................................23

    5. Outlook .............................................................................................................23

    D. General Motors ......................................................................................................26

    1. Context ..............................................................................................................26

    2. More Recent Developments ..............................................................................30

    3. Outlook .............................................................................................................37

    ...................................................................................42

    E. Chrysler ..................................................................................................................48

    1. Context ..............................................................................................................48

    2. Outlook .............................................................................................................60

    Repayment Scenarios .............................................................................................67

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    Executive Summary*

    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.

    U.S. automotive industry will prove to be a success, there can be no question that the

    actions have had a major impact and appear to be on a promisingcourse. 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

    accoun-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 sharewell belowthe $44.59 needed to be on track to recover fully

    than this break-illions 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

    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

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

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    loans made to the pre-bankruptcy Chrysler, the prospect for a full recovery of taxpayers

    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

    processbut while this approach may have saved Chrysler from liquidation, the result is that

    Treasury has little aut

    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.

    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 timing due to

    its preferred stock holdings, but regrettably, Treasury has been inconsistent in acknowledging

    this levereluctance to recognize its own influence may represent an effort to

    despite the unique circumstances that apply

    to GMAC/Ally Financial.

    ions. Treasury has asserted that, even

    if one of the automotive companies had announced an entirely unrealistic business plan, Treasury

    of AmeriCredit, a subprime financing company, even though AmeriCredit may ultimately

    compete against GMAC/Ally Financial and thus damage

    about the limited scope of government intervention, it may also have forced Treasury to leaveunexplored 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

    rescue suggested that any sufficiently large American corporation even if it is not a bankmay

    be

    far beyond the financial system. Further, the fact that the government helped absorb the

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    ntervention will linger

    long after taxpayers have sold their last share of stock in the automotive industry.

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    Section One:

    A.

    IntroductionIn late 2008 and early 2009, the federal government undertook the unprecedented rescue

    of two of the three major U.S.-based automobile manufacturers, as well as a major automotive

    financing company. These interventions were accomplished using resources from the Troubled

    Asset Relief Program (TARP), a program that Congress created with passage of the Emergency

    Economic Stabilization Act (EESA) in October 2008 and which was aimed primarily at

    preventing economic collapse by restoring stability in the financial sector. This month the

    Congressional Oversight Panel looks at what the TARP has accomplished in the automobile

    the three rescued firms:

    General Motors, Chrysler, and GMAC/Ally Financial.1

    The Panel first reviewed the actions of Treasury in rescuing GM and Chrysler in a

    September 2009 report. That report asked whether the actions taken to that point to rescue GM

    and Chrysler served merely to forestall a decision ultimately to liquidate those companies or to

    intervene with still more government assistance to make them viable. It remains too early to

    render a conclusive verdict on that question. But the events of the intervening 16 months allow a

    tentative judgment: GM and Chrysler are both more viable firms than they were in December

    2008 with GM on a credible path to recovery but Chrysllook more uncertain. Likewise,

    firms has become more apparent for GM than for Chrysler. The intervening time since thethe GM and Chrysler rescues has also allowed for some greater

    understanding of how Treasury would behave as an invest