U.S. Unlikely to Recoup Auto Investments, Report Says
(NY TIMES) DETROIT — A government report released Monday concludes that taxpayers will probably never recoup all — or even close to all — of the $67 billion that the Treasury Department lent to General Motorsand Chrysler in the last year to prevent their collapse.
The report, by the Government Accountability Office, estimates that G.M. and Chrysler would need to be worth a combined $121.7 billion, or roughly 30 percent more than their values about a decade ago, for the Treasury to break even on its investments. The report said it already was assuming that $6.4 billion of the money lent to the carmakers before their bankruptcies would not be repaid.
“Treasury is unlikely to recover the entirety of its investment in Chrysler or G.M., given that the companies’ values would have to grow substantially above what they have been in the past,” the report said.
The companies’ current value and recent financial performance are unknown because neither one is publicly traded. The report said that G.M. had agreed to file a third-quarter and 2009 full-year earnings report by March 31, 2010, but that there was no such agreement with Chrysler. Both companies must file frequent financial summaries with the Treasury as long as their loans are outstanding, however.
The Treasury Department hopes to have an initial public offering of G.M. shares as soon as 2010, and a sale of its share in Chrysler would occur at some point after that. It owns 60.8 percent of G.M. and 9.85 percent of Chrysler, whose majority owner is the United Automobile Workers union’s retiree health care trust.
But the report expressed concern that a plan to wind down the automotive task force created by President Obama to oversee the carmakers’ rescue would leave the government with insufficient expertise to protect its interests in the companies and to determine how and when to divest its stakes. The task force, originally 12 people, now has just four staff members.
An Italian automaker, Fiat, bought 20 percent of Chrysler as part of a deal reached under the Treasury Department’s direction. Fiat can increase its stake by achieving three goals, each of which is worth an additional 5 percent of the company, the report said.
The goals are: to assemble a car in the United States that is rated at 40 miles per gallon or higher; to provide Chrysler with “a distribution network in numerous foreign jurisdictions”; and to build “state-of-the-art, next-generation engines” at a Chrysler plant in the United States, the report said.
Fiat can assume 51 percent of Chrysler after the company repays its loan in full.
The report disclosed for the first time that the government has imposed specific minimum production requirements on Chrysler, and general requirements on G.M.
Chrysler must either build 40 percent of its domestic sales volume in the United States, or else its United States production volume must be at least 90 percent of last year’s figure. G.M. has agreed to use its “commercially reasonable best efforts” to maintain a domestic production level that is at least 90 percent of its projected restructuring plan, the report said.