Troubled Asset Relief Program: Continued Stewardship Needed as Treasury Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler and GM
GAO-10-151
Published: Nov 02, 2009. Publicly Released: Nov 02, 2009.
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Highlights
The Department of the Treasury (Treasury) provided $81.1 billion in Troubled Asset Relief Program (TARP) aid to the U.S. auto industry, including $62 billion in restructuring loans to Chrysler Group LLC (Chrysler) and General Motors Company (GM). In return, Treasury received 9.85 percent equity in Chrysler, 60.8 percent equity and $2.1 billion in preferred stock in GM, and $13.8 billion in debt obligations between the two companies. As part of Government Accountability Office's (GAO) statutory responsibilities for providing oversight of TARP, this report addresses (1) steps Chrysler and GM have taken since December 2008 to reorganize, (2) Treasury's oversight of its financial interest in the companies, and (3) considerations for Treasury in monitoring and selling its equity in the companies. GAO reviewed documents on the auto companies' restructuring and spoke with officials at Treasury, Chrysler, and GM, and individuals with expertise in finance and the auto industry.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Treasury | To improve the stewardship of the federal government's substantial financial investment in the auto industry, the Secretary of the Treasury should ensure that the department has the expertise needed to adequately monitor and divest the government's investment in Chrysler and GM, and obtain needed expertise in areas where gaps are identified. In addressing any existing or future expertise gaps, Treasury should consider both in-house and external expertise. | In a November 2009 report on Treasury's Automotive Industry Financing Program (AIFP), GAO found that many of the individuals that Treasury initially hired, either as full-time staff or consultants, to help monitor and eventually sell Treasury's 9.9 percent equity in Chrysler and 61 percent equity in GM had left or were planning to leave the department. More specifically, two thirds of the original professional staff dedicated to overseeing the AIFP (known as the Treasury "auto team") had left Treasury, and Treasury did not contract with or employ outside firms with specialty expertise for its work with the auto industry. In addition, the leader of the auto team had been recently... appointed Senior Counselor for Manufacturing Policy, requiring him to split his time between the auto team and his new role. As such, GAO recommended that Treasury ensure it had the expertise needed to adequately monitor and divest the government's investment in Chrysler and GM, and obtain needed expertise where gaps were identified. In response, Treasury hired two additional staff to work on the auto team and hired Lazard LLC in May 2010 to act as an advisor on the disposition of Treasury's investment in GM. As a result of these changes, Treasury will (1) have additional staff and assistance dedicated to overseeing its equity in Chrysler and GM and (2) be better equipped to develop a strategy for divesting its ownership interest in these companies and protecting the government's significant financial investment.
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| Department of the Treasury | To improve the stewardship of the federal government's substantial financial investment in the auto industry, the Secretary of the Treasury should report to Congress on how it plans to assess and monitor the companies' performance to help ensure the companies are on track to repay their loans and to return to profitability. In reporting to Congress, Treasury should balance the need for transparency with the need to protect certain proprietary information that would put the companies at a competitive disadvantage or negatively affect Treasury's ability to recover the taxpayers' investments. | As part of a November 2009 report on the U.S. Treasury's (Treasury) Automotive Industry Financing Program (AIFP), GAO reported that, in an effort to oversee its $62 billion investment in GM and Chrysler, Treasury had established requirements in its credit agreements with the companies under which the companies had to report certain financial information to Treasury. In addition, Treasury reached agreement with the companies on additional financial, managerial, and operating information that they would provide in monthly reporting packages to Treasury. Treasury had planned to use this information to closely monitor the financial condition of GM and Chrysler. However, Treasury had not...
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| Department of the Treasury | To improve the stewardship of the federal government's substantial financial investment in the auto industry, the Secretary of the Treasury should develop criteria for evaluating the optimal method and timing for divesting the government's ownership stake in Chrysler and GM. In applying these criteria, Treasury should evaluate the full range of available options, such as IPOs or private sales. | As part of a November 2009 report on the U.S. Treasury's (Treasury) Automotive Industry Financing Program (AIFP), GAO reported that one of the key components for Treasury's strategy in exiting its $62 billion investment in GM and Chrysler is to determine how and when to sell the investment. Although Treasury officials said that they were considering all options for divesting the government's ownership interests, including an initial public offering or private sale, they had not identified criteria for determining the optimal time and method to sell. GAO concluded that determining when and how to divest the government's ownership stake will be one of the most important decisions Treasury...
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Appropriated fundsAssetsAutomobile industryBankruptcyDebtEconomic stabilizationEmergency response fundsFederal fundsFinancial disclosureFinancial managementFinancial recordsFinancial statementsFunds managementIndustrial fundsLoansMonitoringOrganizational changePerformance appraisalPerformance managementPerformance measuresProgram evaluationReorganizationReporting requirementsStability operationsStrategic planningTaxpayers