Carmakers slicing into bailout debt, panel reports
The federal government’s $85-billion bailout of the U.S. auto industry will be less costly than first thought, but it’s still not clear whether taxpayers will recoup all of their investment, according to a congressional watchdog panel.
With major automakers on the mend, the taxpayers’ position has “starkly improved” since the last review by the Congressional Oversight Panel in September 2009. At that time federal budget analysts estimated that taxpayers would lose $40 billion from the bailout.
The estimated loss now stands at about $19 billion and could continue to shrink, according to the panel, created by Congress in 2008 to review the financial markets and the federal regulatory system. “Treasury is now on course to recover the majority of its automotive investments within the next few years,” the panel, chaired by Sen. Ted Kaufman (D-Del.), said in its report Thursday.
As sales plunged in 2008, the auto industry sought federal help to weather the recession. The automakers also cut tens of thousands of jobs, closed factories, shut dealerships and renegotiated union contracts to save money. Ford Motor Co. was the only major automaker to not seek federal financial help.
The three largest recipients of automotive bailout funds — General Motors Co., Chrysler Group and GMAC/Ally Financial, a mortgage and auto lender — all appear to be improving financially, according to the panel’s assessment. That increases the Treasury’s chances of recouping more of the funds.
Through debt repayment, interest income and GM’s initial public stock offering last year, taxpayers got back $23.1 billion of nearly $49.5 billion the government put into the nation’s largest automaker. The Treasury Department still holds 500 million shares of GM, about 33% of the automaker’s stock worth about $19 billion at GM’s current share price. The government took a stake in GM and others by converting loans into shares.
GM shares closed Thursday at $38.27, down 35 cents. The Treasury Department needs the price to rise to about $53 a share for the government to break even on its GM bailout.
The climb back has been long and arduous, said Thomas Stephens, GM’s vice chairman and product development chief.
“We have taken the first steps, but there is a long way to go,” Stephens told The Times this week at the North American International Auto Show in Detroit.
The company expects to report a profit for the year ended Dec. 31, having earned $2 billion in the third quarter. It has not yet reported fourth-quarter financial results.
Chrysler’s situation also is improving, said Sergio Marchionne, the company’s chief executive.
The automaker narrowed its loss to $84 million in the third quarter, its smallest quarterly loss since exiting bankruptcy protection in 2009. It is now operating at least at the break-even level, company executives said, and expects to earn an operating profit of $1.6 billion to $2.4 billion this year.
Chrysler is on track to pay down $2.1 billion of the $5.8 billion it owes the government by the end of the year and may retire the entire debt, Marchionne said.
Marchionne said he wanted to pay off the Treasury Department in full and another $1.6 billion owed the Canadian government before launching a public offering of Chrysler stock, which he hopes to do by year’s end.
“I think we will repay every ounce of the loans, 100 cents on the dollar,” Marchionne said.
Despite the likelihood of narrower losses or even a break-even outcome for the government, the congressional watchdog panel said it was still leery of federal bailouts because of the questions they raise about government intervention in large companies.
The panel noted that the government “absorbed the consequences of GM’s and Chrysler’s failures” while more competently run organizations that were also in deep trouble didn’t get the same help because they were able to muddle through.
Ford, for example, piled on massive debt to finance its own reorganization and has been diverting a portion of its profits to pay down the loans and get back its investment-grade credit rating. The company reduced the debt for its automotive operations by $12.8 billion last year. While that sliced nearly $1 billion off of its interest expenses, Ford still has $22.8 billion in debt.
“The effects of Treasury’s intervention will linger long after taxpayers have sold their last share of stock in the automotive industry,” the panel said.
