U.S. Treasury Loses $11.2 Billion In Accounting Of GM Bailout

by Cameron Aubernon

Published: May 1st, 2014

u s treasury loses 11 2 billion in accounting of gm bailout

Detroit Free Press reports the U.S. Treasury lost $11.2 billion in taxpayer money from the rescue of General Motors back in 2008, up from the $10.3 billion estimated after the agency sold its remaining shares back in early December 2013. Part of the final figure came as a write-off of an $826 million “administrative claim,” which was found in a report by the Office of the Special Inspector General for the Troubled Asset Relief Program. The overall figure pales in comparison to the $50.2 billion given by both Bush and Obama administrations between 2008 and 2009 to GM as the automaker struggled through its financial crisis at the onset of the Great Recession.

In other financial news, Automotive News reports the automaker’s new financial arm, GM Financial, has launched a pilot program for prime-risk consumers in preparation for an expansion into the market later this summer. In addition, the auto lender proclaimed last week that it began GM-backed lending in the near-prime market during Q1 2014 alongside its subvented subprime loans. Finally, GM Financial reported a net income of $145 million during the same period — acquiring the majority of former GM lender Ally Financial’s International Operations, as well — with loan and lease originations totally $2.1 billion in the United States and Canada, $4.2 globally.

Another former GM subsidiary is looking into “improper payments” made by employees in China. As Reuters reports, Delphi found a number of these payments by manufacturing facility employees, which could be in violation of the U.S. Foreign Corrupt Practices Act. The supplier is working closely with both the Securities and Exchange Commission and the U.S. Department of Justice, as well as contacted outside counsel to assist. Delphi warned that if what they found was true, the violations “could result in criminal and/or civil liabilities and other forms of penalties or sanctions.”

The Detroit News says GM has begun construction on a new motorsport engine design and production facility set to open in 2016 within its Global Powerplant headquarters in Pontiac, Mich. One hundred engineers and technicians are expected to transfer from their posts in Wixom, Mich. to 138,000-square-foot Performance and Racing Center in Pontiac by the middle of 2015, where they will work alongside the production engine team in sharing technology gathered from the track. The center, part of a $200 million investment into GM’s Pontiac facility, will offer an electric motor lab and a gear center to aid in the development of advanced electric motors and transmissions.

Finally, Forbes posits that GM’s lack of thorough engagement with its customers could once again give some loyalists pause before giving their favorite brand the benefit of a doubt. In one example, the automaker — which already had fewer engaged consumers pre-recall than the likes of Ford, Hyundai and Toyota with their respective recalls — posted the largest post-recall decline while Toyota and Hyundai lost the least after their recalls. The low engagement figures for GM could be a sign of things to come as it works its way through its many issues beyond the original recall in February 2014.

#AllyFinancial #Bailouts #China #CustomerEngagement #Delphi #GeneralMotors #GmFinancial #Losses #Motorsports #NearPrime #TaxpayerFunds #Subprime #U.S.DepartmentOfJustice #SecuritiesAndExchangeCommission #Prime-risk #PilotProgams #U.S.ForeignCorruptPracticesAct

Cameron Aubernon

Seattle-based writer, blogger, and photographer for many a publication. Born in Louisville. Raised in Kansas. Where I lay my head is home.

More by Cameron Aubernon

Comments

Join the conversation

6 of 74 comments

CapVandal on May 02, 2014

TARP was designed to roughly break even and it did. In 2008-2009, the consensus was that all of the disbursement to the auto industry (about $70 billion) was going to go to zero. As it was, New GM Common Stock didn't sell for as much as expected, so it cost $10 billion. And, GM wasn't 'bailed out' .... it went bankrupt. The owners/stock holders received $0. The bankruptcy was done on favorable terms for everyone BUT the stock holders. When you have a huge financial crisis and one of your countries largest manufactures is going bankrupt, then how does it NOT make sense to use government funds to minimize the economic volatility? The bailout of AIG http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/aig/pages/default.aspx ended up with a $22.7 billion profit for the government. Once again, the stock holders/owners were roughly wiped out (lost 92% of their investment). The Treasury made http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/bank-investment-programs/Pages/default.aspx at least $28 billion on the bank investment program. The single most surprising outcome is that Ally Financial aka GMAC is going to end up in the black. http://www.rawstory.com/rs/2014/04/09/treasury-sets-2-375-billion-stock-ipo-to-finalize-bailout-of-ally-financial/ So .... how exactly was TARP a cost to the taxpayer? I have to laugh when representatives who live in districts who will never pay close in taxes to what they collect in benefits (think Baltimore City) -- have the audacity to use the phrase TAXPAYER's MONEY. In most parts of the city, you would be hard pressed to find a single taxpayer. Since all the bailed out companies wiped out the owners/stock holders, who lost between 90% and 100% of their investments -- and the Federal Government made money overall on TARP --- what is this about? The bailout wan't for the owners of the bailed out companies -- it was for the remainder of the country that would have suffered in a deflationary spiral (debt deflation) -- which we saw between 1929 and 1940. And since the Federal Government collects roughly 20% of GDP, including 1/3 of all corporate profits in perpetuity -- the Government is the largest 'stake holder' in the private sector. People are entitled to their own opinions but not their own facts. And the fact is that TARP made money. Banks -- +28 billion. AIG +22 billion Auto -$10 billion The government wasn't giving money away. They were selling exit visas from hell. And even they couldn't lose money on that.

Like Reply
- See 3 previous
- Thelaine on May 02, 2014
  
  @capvandal What an excellent post. Much appreciated. Question: Do you not care that stakeholder UAW got a pension bailout that apparently cost about 10 billion dollars? This is not a sarcastic question. Investors got wiped out. UAW members got paid off, or so it seems to me. Could GM have been saved without any loss to taxpayers? Could the UAW have sacrificed like Delco workers did? Why should the UAW get a taxpayer windfall when the justification for the money is to save the company and the jobs? What are your thoughts on this?
  
  Like
- CapVandal on May 02, 2014
  
  @thelaine Thanks for the complement. I don't know the details of the Auto Bailout and GM bankruptcy. Here is the way I look at it. The $10 billion didn't directly or even intentionally go to the UAW. During bankruptcy, the UAW pension funds got priority over bond holders. By that I mean, the bondholders walked away with little or nothing and the pension fund came out a lot better off than they would have under more typical bankruptcies. And the pension fund and GM both got Stock in the NEW GM. The Treasury got ended up with both loans from NEW GM and stock from new GM. The loans were paid back. The stock did well after the initial IPO, but then faltered. The Treasury sold reasonably quickly, and took a $10 billion loss. So they took roughly a 20% haircut on the total GM deal. The GM/UAW pension fund -- the way I see it -- got preferential treatment and hence money in the bankruptcy. I don't worry too much about the fairness of that. A big chunk of the pension problems are post retirement health benefits. I some retirees had to pay their medicare co pays -- I wouldn't lose much sleep. Same for the bondholders. In the bigger picture -- any investment -- is going to work out differently than anticipated. I thought that Ally/GMAC was going to lose $10 billion and GM would break even. Ally annoyed me more because "Government GMAC Finance" constantly ran ads criticizing local banks. And called themselves a new and better bank, etc. I found each and every one of these ads annoying. From my perspective, it doesn't matter which exact deal made money or lost money. AIG could have made $10 billion less and GM could have broken even. Or GM could have broken even and Ally could have lost the $10 billion. Overall, TARP was supposed (many thought best case, at the time) to roughly break even. It made some money. So ... for the Taxpayer/Government, TARP was a clear winner. It made money instead of losing money, provided a huge boost to general confidence in the American Economy, and reduced the impact from a financial meltdown. It wasn't strictly fair to all groups. Some groups came out better than others. It seemed reasonably fair ... equity owners got wiped out. A lot of bond holders got wiped out. Other bond holders (not GM's) got made whole. Anyone on the bottom of the food chain that had their job saved got a break -- but that is directionally correct. Other people can have different ideas about it, and almost everyone that digs into it would have helped some groups more and other groups less. I don't have the details, timeline, or dollar figures at hand (and don't want to look it up). But I think this is roughly the way it happened with GM. Would anyone with any passion over this issue have really cared that much if GM stock had gone from $30 to $45 instead of down to $25 (or whatever the exact figures are) and the net cost on the GM piece of Auto cost $0? If people hate it as a matter of principle, then the exact financial outcome doesn't matter. If the financial outcome is what matters most, the entire TARP program made money.
  
  Like
- KixStart on May 02, 2014
  
  thelaine, The pension obligations would have been thrown over to the Pension Benefit Guaranty Corp, which is already suffering. Pensions could be covered by ownership in New GM or by the PBGC. Ownership in GM gives them incentive to work with management for the greater good. Well, some incentive, anyway. I wouldn't be surprised if there were some over-optimistic assessments of GM's future potential in the Administration that colored their thinking... Could be they expected the loss to be smaller or zero. But the problem with pensions was a stubborn one they couldn't wish away.
  
  Like
- Thelaine on May 03, 2014
  
  @capvandal You have the gift of clarity. I had not seen such a concise summary of the aftermath of TARP, with GM in context. Again, much appreciated.
  
  Like
Jimbob457 on May 02, 2014

The Fed and the government's management of the 2008-9 auto bankruptcy crisis was pretty good all things considered. Normal Chapter 11 bankruptcy was out of the question. Even if DIP financing had been available (it wasn't), Chapter 11 would have shut down much of the industry for many months while the lawyers and accountants tried to sort things out. Loan covenants and clauses in franchise agreements would have been triggered willy nilly. Suppliers would have gone under. The Great Recession would have morphed into another Great Depression. Even Ford management supported the bailout because a Chapter 11 alternative would have ruined so many of their suppliers. Of course the auto crisis arose in the first place from deep flaws in the corporate cultures of GM and Chrysler, e.g. taking private jets to the meetings in Washington??? To what (if any) extent has this been fixed? That would make an interesting thread.

Like Reply