Taxpayers face losses on a significant portion of the $81 billion in government aid provided to the auto industry, an oversight panel said in a report to be released Wednesday.Color me shocked! The full report, in all its ignominy, is here. And hey, look at the bright side: sure the taxpayers are going to lose big, but the UAW dominated! Here are my favorite passages from the PDF of the report:
The Congressional Oversight Panel did not provide an estimate of the projected loss in its latest monthly report on the $700 billion Troubled Asset Relief Program. But it said most of the $23 billion initially provided to General Motors Corp. and Chrysler LLC late last year is unlikely to be repaid.
"I think they drove a very hard bargain," said Elizabeth Warren, the panel's chairwoman and a law professor at Harvard University, referring to the Obama administration's Treasury Department. "But it may not be enough."
The prospect of recovering the government's assistance to GM and Chrysler is heavily dependent on shares of the two companies rising to unprecedented levels, the report said. The government owns 10 percent of Chrysler and 61 percent of GM. The two companies are currently private but are expected to issue stock, in GM's case by next year.
The shares "will have to appreciate sharply" for taxpayers to get their money back, the report said.
For example, GM's market value would have to reach $67.6 billion, the report said, a "highly optimistic" estimate and more than the $57.2 billion GM was worth at the height of its share value in April 2008. And in the case of Chrysler, about $5.4 billion of the $14.3 billion provided to the company is "highly unlikely" to ever be repaid, the panel said.
Treasury Department officials have acknowledged that most of the $23 billion provided by the Bush administration is likely to be lost. But Meg Reilly, a department spokeswoman, said there is a "reasonably high probability of the return of most or all of the government funding" that was provided to assist GM and Chrysler with their restructurings.
Administration officials have previously said they want to maximize taxpayers' return on the investment but want to dispose of the government's ownership interests as soon as practicable.
"We are not trying to be Warren Buffett here. We are not trying to squeeze every last dollar out," Steve Rattner, who led the administration's auto task force, said before his departure in July. "We do want to do well for the taxpayers but the most important thing is to get the government out of the car business."
Greg Martin, a spokesman for the new GM, said the company is "confident that we will repay our nation's support because we are a company with less debt, a stronger balance sheet, a winning product portfolio and the right size to match today's market realities."
The Congressional Oversight Panel was created as part of the Troubled Asset Relief Program, or TARP. It is designed to provide an additional layer of oversight, beyond the Special Inspector General for the TARP and regular audits by the Government Accountability Office.
The panel's report recommends that the Treasury Department consider placing its auto company holdings into an independent trust, to avoid any "conflicts of interest."
The report also recommends the department perform a legal analysis of its decision to provide TARP funds to GM and Chrysler, their financing arms and many auto parts suppliers. Some critics say the law creating TARP didn't allow for such funding.
The panel's members include Rep. Jeb Hensarling, a Texas Republican, who dissented from the report. Hensarling said the auto companies should never have received funding and criticized the government for picking "winners and losers."
Other agencies have also projected large losses on the loans and investments provided to the industry. The Congressional Budget Office estimated in June that taxpayers would lose about $40 billion of the first $55 billion in aid.
Treasury‟s involvement in the Chrysler bankruptcy,as well as the General Motors bankruptcy, where the Chrysler approach was mirrored, is likely to cause investors to reevaluate their risk assessment regarding certain companies with similar characteristics. Large, industrial, heavily unionized companies, especially those with significant liabilities in the form of pension or healthcare obligations, might be considered to be of special interest to the government. (Page 54)Impressive work by the UAW, really. They lined their pockets, dramatically distorted future investment activity and probably subverted decades of bankruptcy common law. Quite the trifecta!
The sale served the government’s desire to assure continuation of the company and to protect the union’s interest, but it is not apparent that the sale was designed to maximize the return to the bankruptcy estate and there seems no legitimate reason to have restricted bids based on the bidders’ willingness to assume favored liabilities. The approved sale, therefore, ran afoul of the Supreme Court’s admonition, in an analogous case, North LaSalle Street, that a court should not settle a valuation dispute among parties with a determination “untested by competitive choice.” (Page 120)