Government Accountability Office, Meet The Auto Industry Bailout

Move over, Neil Barofsky. The SIGTARP may make the media rounds, but he’s got three trillion worth of TARP to cover. Which is why his recent Quarterly Report to Congress ( PDF file available here) wasn’t exactly breathtaking for Chrysler/GM watchers. The Government Accountability Office, on the other hand, has just dropped a report specifically covering the Treasury’s execution of the auto bailout. If you’ve been following TTAC’s coverage through these strange days, the 48-page Summary of Government Efforts and Automakers’ Restructuring to Date ( PDF file available here) won’t exactly brim with new insights either. It’s the fact that anyone in the government (sandbagging senators aside) is acknowledging some seriously inconvenient truths.

The GAO (TTAG?) report is comprehensive in its criticism of the auto bailout’s execution and fears for the taxpayer “investment.” From its summary:

In providing assistance to the auto industry, Treasury identified goals and objectives and took steps to protect the government’s interest. Provisions to protect the government’s interest include requiring automakers to submit periodic financial reports and to gain concessions from stakeholders such as the UAW, creditors, and bondholders. To date, however, Chrysler and GM have not reached agreements with these stakeholders. In addition, Treasury included provisions to secure collateral from the automakers. However, because many of Chrysler’s and GM’s assets were already encumbered by other creditors, the amount of assets on which Treasury could secure senior liens was limited. An additional area of risk is the financial health of the automakers’ pension plans. In the event that Chrysler or GM cannot continue to maintain its pension plans—such as in the case of liquidation—the Pension Benefit Guaranty Corporation, a government corporation, may be required to take responsibility for paying the benefits for the plans, which are not fully funded.

And making this taxpayer “haircut” even more likely are a number of factors, including many that are out of even the government’s control. But even if recession, credit shortages, fuel price volatility and the Sebring fade to mere memories, there are still the factors that GM and Chrysler can control. Sorry, could control.

GAO’s panel of individuals with auto industry expertise identified a number of factors for achieving viability, including reducing the number of brands, reassessing the scope and size of dealership networks, reducing production capacity and costs, and obtaining labor concessions. However, Chrysler’s and GM’s restructuring plans submitted in February do not fully address these factors, according to GAO’s panelists.

And the government paymasters?

Although Treasury identified goals for the assistance, it will need to determine how to assess goals that rely on concepts that are not clearly defined and to evaluate the relevant trade-offs associated with the goals that appear to conflict. For example, the goals stated in the loan agreements include concepts that were not defined, such as rationalized manufacturing capacity and competitive product mix.

The GAO continues in the patient tone one must occasionally take with toddlers:

If additional assistance is provided to the automakers, it will be important for Treasury to clearly articulate what it intends to achieve with this assistance… In addition to lacking clear definitions, some of Treasury’s goals may work at cross purposes, at least in the short-term, and thus will require an assessment of the relevant trade-offs among the goals. For example, according to members of our panel, producing advanced technology vehicles has the potential to conflict with the goal of developing a viable business in the near term because the costs of designing, developing, and producing these types of vehicles are greater than the revenue generated in the initial years of sales.

Read the whole thing. 48 pages in the new billion dollars. No biggie.