Treasury’s GM Investment Runs Out of Gas, Losses Expected
$9.7 billion — that is how much the Special Inspector General overseeing the Troubled Asset Relief Program (SIGTARP) estimates the U.S. Treasury will lose from the bailout of General Motors (NYSE: GM). The SIGTARP report, published Tuesday, has a multitude of findings about the cost and culture surrounding the bailout.
The Government Accountability Office (GAO) also issued its own statement on the financial state of the federal government’s involvement in General Motors. The GAO said $35.21 billion of the $51 billion investment had been recovered as of September 13; the government then reduced its ownership stake from 60.6 percent to 7.32 percent and plans to sell off remaining stock in GM in early 2014. As a result, the government will lose about 19 percent of its original investment in General Motors.
However, $15 billion is still owed from the GM bailout, and in order to recover the entire amount, completely erasing any debts, SIGTARP calculates that the government needs to be able to sell its stake in GM for $147.95 per share. This seems unlikely, given that would require GM stock, currently trading between $36 and $37 per share, to quadruple in value.
A Treasury loss on automotive investments is not unprecedented, the Special Inspector General report explains. Chrysler LLC ended its TARP relationship in 2011, and when it did, taxpayers lost $2.9 billion due to the Treasury investment.
A study released in 2010 by the Center for Automative Research concluded that ”the government’s actions avoided personal income losses totaling over $96 billion, 1.1 million net job losses in 2009, and another 314,400 in 2010.” The combined losses from GM and Chrysler, seen in the table below, do not come close to approaching that amount.
Losses incurred and all, compared to what could have happened according to estimates, this does look like the preferred picture. However, some actions by those managing the bailout may cause backlash — that’s also detailed in the report, alongside projected losses.
The SIGTARP report gives background information on the auto bailout. Chrysler and GM differed from other companies or groups being given TARP funds because the auto companies received presidentially designated oversight. GM’s restructuring fell to four individuals, the Auto Team, led by Steve Rattner.
SIGTARP then investigated the role the Auto Team had at GM. ”Although the Auto Team’s role was supposed to be advisory for matters not requiring Treasury’s consent under the TARP loan agreement, in practice, it was more than advisory,” the report says. The Auto Team also “used their leverage as GM’s largest lender to influence GM to make decisions in areas that did not require Treasury’s consent, in line with Treasury’s preferences.”
Ultimately, the report decides that the Auto Team took on a quasi-governmental investor role, wearing whichever hat suited the team’s needs at the time: “Although the Auto Team tried to view issues through a ‘commercially reasonable’ lens like a private investor, they often did not act as a private investor, nor should they have.”
On this matter, the report concludes by saying that since the team entered the bailout as the government, it should have acted as the government.