Tag Archive | "bailout"

Government Loses $9.26 Billion on Auto Bailout

WASHINGTON, D.C. — According to a report from the U.S. Treasury Department released Monday, the government lost a total of $9.26 billion on its bailout of the auto industry during the Great Recession. The program closed after the Treasury sold its final shares of Ally Financial on Dec. 19, The Detroit News reports.

The Treasury recovered $70.43 billion of the $79.69 billion it gave to General Motors Corp., Chrysler LLC and auto lending arms Ally Financial Inc. and Chrysler Financial. While the government actually made $2.4 billion on its investment of Ally, it recouped just $39 billion of the $49.5 billion given to GM; and $10.67 billion of the $11.96 billion that went to Chrysler.

To read the full story, click here.

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Government Selling Last Stake in Ally Financial

The government is selling the last of its shares in Ally Financial Inc., the former financing arm of General Motors that was bailed out during the financial crisis, reported MLive.

Detroit-based Ally said Thursday that the Treasury Department is selling its remaining 54.9 million shares. That amounts to about an 11 percent stake in the company. At the close of trading Thursday, that would be worth about $1.25 billion.

Ally, formerly called GMAC Inc., received a $17.2 billion bailout that began in 2008. It’s now a standalone auto financing company and bank.

Ally said that the government has already received $18.3 billion from its investment in the company. Ally went public in April and Treasury sold a chunk of its stake then.

Separately Thursday, Ally said that it has received a subpoena from the Justice Department related to subprime auto loans. It said other financial institutions had said they received similar requests earlier this year. GM Financial, an affiliate of General Motors Co., acknowledged in August receiving a subpoena over subprime auto loans.

GM Financial had said that the Justice Department was considering a civil lawsuit for potential violations of the Financial Institutions Reform, Recovery and Enforcement Act, a federal law that was passed following the savings and loan crisis in the 1980s.

Subprime loans generally are made to borrowers with questionable credit repayment histories.

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Government Loss on GM Bailout Deeper Than First Thought, Report Finds

Via Detroit Free Press

The U.S. government posted a deeper loss than initially recorded on the General Motors bailout, according to a government report released today.

Taxpayers lost $11.2 billion on the GM bailout, up from $10.3 billion the Treasury Department estimated when it sold its last GM shares on Dec. 9.

A Treasury Department auditor said the government had written off an $826-million “administrative claim” tied to the GM bailout on March 20.

The figure surfaced in a report by the Office of the Special Inspector General for the Troubled Asset Relief Program, which was charged with overseeing the federal government’s economic stimulus program.

A spokesman for the inspector general could not be reached immediately to provide details about the administrative claim.

The Bush and Obama administrations collectively distributed $50.2 billion in emergency aid to GM in late 2008 and early 2009 to help the company survive the economic crisis and navigate Chapter 11 bankruptcy in June and July 2009. The cash proved crucial in saving the automaker and preventing a disruption in the supply chain, according to Center for Automotive Research studies.

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A Weight Hobbling G.M.

DETROIT — General Motors posted its ninth consecutive profitable quarter on Thursday. But almost three years after its taxpayer bailout and bankruptcy, the nation’s biggest automaker still can’t shed the stigma of being “Government Motors.”

Because the Treasury Department still owns a 26 percent stake in the company, G.M. remains saddled with pay restrictions that limit its ability to recruit new talent, a ban on corporate jets, and lingering image problems in the eyes of some consumers, reported The New York Times.

Company executives usually deflect questions about the effect of government ownership on their business, or their frustration with it. But in a rare interview on the topic, G.M.’s chief executive, Daniel F. Akerson, said he longs for the day that G.M. can finally say goodbye to its biggest shareholder.

“I try not to let it bother me,” Mr. Akerson said. “But the fact is it does bother me.”

The farewell celebration won’t be happening anytime soon. Based on G.M.’s current stock price of $22.37, taxpayers would lose an estimated $15 billion if the government’s shares were sold today. Unless the stock rose quite significantly, the chances are slim that the Obama administration would sell its 500 million shares before the November election and invite criticism from Republicans about the wisdom of the auto industry bailout.

Mr. Akerson said he has regular conversations with Treasury officials, but has never gotten guidance on when they intend to divest. “I don’t know what the government’s plan is,” he said. “I think it would be helpful if they would publicly state it.”

After pumping in nearly $50 billion to save G.M., American taxpayers owned about 60 percent of the company when it emerged from Chapter 11 in the summer of 2009. The government sold the bulk of its holdings at $33 a share in the company’s public stock offering a year later.

But the administration is not eager to sell the rest at a loss. “As with all of our investments, we try to balance the goals of maximizing taxpayer recoveries and exiting as soon as practicable,” said Timothy G. Massad, the assistant Treasury secretary overseeing the Troubled Asset Relief Program. “We don’t have a specific timetable, but we’ll continue to watch the market closely.”

Like partners in a three-legged foot race, both the company and the government are hobbled by their connection. Unless G.M. improves its performance and gets the stock price up, the government can’t sell without losing billions. At the same time, uncertainty about the government’s stake worries some investors and hurts consumer perceptions of G.M. cars.

In a survey last quarter of 30,000 Americans shopping for new vehicles, 32 percent of those who rejected a G.M. model said they would not consider buying from the carmaker because of the bailout.

While that is down from 59 percent in 2009, “G.M. still has quite a hangover,” said Art Spinella, president of the firm that conducted the survey, CNW Marketing Research of Bandon, Ore. “That’s a significant number of people who will buy something else because of the bailout.”

Chrysler, the other Detroit automaker to receive government aid, fared better in the most recent survey. The company paid off its federal loans last year, and just 22 percent of shoppers said they had avoided a Chrysler product because of the bailout.

Mr. Akerson said the negative feelings about G.M. were an unfortunate byproduct of the past struggles that led the company to seek government assistance.

“All we can do is put numbers on the board and hope people start to believe in our story,” he said.

Government ownership is also affecting G.M. internally. Mr. Akerson said the company has lost a half-dozen candidates for management jobs because of salary restrictions on companies getting TARP financing. G.M.’s search for a new head of human resources lasted months because several promising contenders balked at the uncertain time frame for the government’s exit.

The government’s ban on corporate aircraft is mostly a matter of inconvenience for Mr. Akerson and his senior staff members. He was stuck in a Paris airport for five hours last year after missing a connecting flight to China, and often spends an entire day traveling to remote factories for visits that last two or three hours.

“It is part of the deal,” Mr. Akerson said. “There’s no use complaining about it.”

He was more troubled by how G.M. had become, in his words, “a political football.” He still seethes about being called to testify before Congress in January about the safety of the Chevrolet Volt, which experienced battery fires after government crash tests. “I think the whole thing was politically driven,” he said.

Mr. Akerson also said he believed that politics were affecting the government’s decision to hang on to its G.M. stock. President Obama has been pointing to the turnaround at G.M. as a bright spot in the nation’s economy. But if Washington were to sell G.M. shares at a loss, the comeback story would be eclipsed by the cost to taxpayers for its rescue, he said.

“That’s why I don’t think they are going to sell in an election year,” Mr. Akerson said. “Right now, this is a positive for the current administration. If they sell it this year and don’t get all the money back, it’s not a positive.”

The presumed Republican presidential nominee, former Massachusetts Gov. Mitt Romney, said in a Feb. 14 opinion article in The Detroit News that the Obama administration needed to “act now to divest itself of its ownership position in G.M.” But in the same article, he said the shares should be “sold in a responsible fashion,” without elaborating.

G.M. is not the only automaker with a lagging stock price. Shares in Ford, which weathered the recession without a bailout, have dropped almost as much as G.M.’s in the last year because of increased competition in the domestic auto market and economic troubles in Europe.

Still, if G.M. improved its sales and earnings, its share price might rise and hasten the government’s exit.

The company said Thursday that it earned $1 billion in the first quarter, a 69 percent decline from the year-ago period, when it benefited from one-time gains from asset sales.

Its earnings in North America improved 30 percent during the quarter, but continued struggles in Europe dragged down overall results. While the company is introducing 20 new models worldwide this year, industry analysts say G.M. has yet to match Ford’s pace in globalizing vehicle platforms to save money on product development, parts and manufacturing costs.

“It’s important for people to realize that they are not done transforming themselves,” said David Whiston, an analyst with the Morningstar investment firm. “It is going to take more time to right the ship.”

The skepticism is not lost on Mr. Akerson, a former executive with the Carlyle Group private equity firm who took over as G.M.’s chief in mid-2010.

“We have a good company,” he said. “It’s our job to make it great again. We know we have a lot of work to do.”

Losing the distinction of Government Motors could help it get there faster. “But we’re in a situation we can’t control,” Mr. Akerson said. “So we have to wait.”

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U.S. Criticized Over Chrysler Financial Pact

WASHINGTON – The U.S. Treasury may not have fully vetted the settlement of its interest in Chrysler Financial last year and not gotten a strong enough return for taxpayers, a bailout watchdog said in a report issued on Thursday.

The Treasury settled its interest in the former financial arm of the automaker for a loss in May last year, Reuters reported.

Private equity firm Cerberus Capital Management then became the sole owner and agreed in December to sell the the financing business for $6.3 billion to Toronto Dominion Bank, raising eyebrows over Treasury’s handling of the settlement.

Treasury may have “left money on the table” in its dealings with Cerberus, said former Delaware Senator Ted Kaufman, who headed the bipartisan Congressional Oversight Panel’s final report on the auto sector.

“The rush to exit Chrysler Financial compounded by incomplete due diligence may have resulted in an unnecessarily subpar return for taxpayers, preventing Treasury from recouping more of its prior $1.6 billion loss,” said the report.

The deal illustrated a broader finding of the panel: that the Obama administration may be too enamored of the politically appealing scenario of quickly cutting its stake in the auto business rather than patiently managing taxpayer interests.

“Treasury’s efforts have in some cases lacked transparency and accountability,” said Kaufman on a conference call with reporters.

Treasury disputed the findings, saying it had hired an independent financial adviser to assist in valuing Chrysler Financial and to check for other potential buyers. It said its exit was done responsibly.

The oversight panel was appointed by Congress to review bailouts under the Troubled Asset Relief Program.

Kaufman stressed that his group understood the administration faced tough decisions in orchestrating the bankruptcy overhaul General Motors Co and Chrysler in 2009. The panel said the government’s intervention was ambitious and the companies now “appear to be on a promising course.”

However, Kaufman said taxpayers will likely lose billions on now-public GM and with Chrysler, now under the management control of Italy’s Fiat.

Treasury has recovered about half of the $50 billion extended to GM in return for nearly 61 percent of the restructured company, and about $2.2 billion of the $12 billion given to Chrysler in exchange for a 10 percent interest.

Bill Visnic, senior editor of Edmunds AutoObserver.com, said the auto bailout was an attempt to prevent harm to the economy and should not be viewed as an investment.

“It had to be done,” Visnic said. “Anything you get back is a bonus.”

Treasury assumed 40 percent of Chrysler Financial’s equity as part of a $3.5 billion pre-bankruptcy loan extended in January 2009 to the lending unit’s parent, Chrysler Holding, which was owned at the time by Cerberus.

Treasury settled for $1.9 billion — a loss of $1.6 billion on the loan — in May 2010, transferring the Chrysler Financial stake to Cerberus, which became the sole owner ahead of the deal with Toronto Dominion Bank.

The panel found that Treasury officials apparently conducted “limited valuation due diligence, focusing on the merits of the offer from Cerberus,” the report said.

Treasury, the panel said, expected that Chrysler Financial would be wound down, which would limit its value. But Chrysler Financial continued investment in its business before finding a strategic partner in TD Bank.

Treasury responded saying it does not “engage in market timing.” The recovery, it said, was significantly more than expected.

Ron Bloom, the administration’s pointman on auto restructuring, said in Detroit this week that the bailouts prevented widespread economic hardship. He also said the agency is moving responsibly to exit the business and that turnarounds at GM and Chrysler have “yielded concrete returns remarkably quickly.”

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GM Execs Will Use Private Charters for IPO Road Show

NEW YORK – General Motors Co. executives will use some charter flights on trips over the next few weeks to meet with prospective investors in the automaker’s upcoming public stock offering, GM said.

GM, Chrysler and Ford Motor Co. sparked public outrage two years ago when executives flew to Washington on chartered jets to ask the federal government for a taxpayer-funded bailout, Reuters reported.

The congressional backlash was so severe that the executives later drove from Detroit for a follow-up hearing in hybrids, a move mocked on “Saturday Night Live.” Ford did not seek a bailout at the time but supported bailouts for its two U.S. competitors to ensure the supply chain would not collapse.

“GM’s corporate travel policy allows charter flights when supported by a business rationale,” GM spokesman Tom Wilkinson told The News York Times. “This is consistent with our requirements under TARP [the federal bailout terms] and our Treasury loan agreement, as our shareholders know.”

The U.S. Treasury Department, which controls the government’s 61 percent GM stake, declined to comment directly on the matter, according to The Times story.

“This is not an issue in which Treasury is in any way involved,” Mark Paustenbach, a Treasury spokesman, told the newspaper.

GM CEO Dan Akerson and several other executives are expected to begin meetings as early as today with potential investors in North America and Europe, according to The Times.

Typically, institutional investors expect face-to-face meetings with the management of companies trying to sell stock. Taking chartered flights ensures the executives will arrive on time for those meetings, also known as “road shows” in the investment world. But given that GM is controlled by taxpayer dollars, the issue has been discussed internally, a source familiar with the matter recently told Reuters.

“It’s fair to say GM is very concerned about appearing extravagant,” said the source. “Even though we always do this, because it’s the only way to really get a road show done properly in an amount of time that minimizes market risk for the seller, this one might be a special case.”

GM on Wednesday finalized terms for the stock offering of about $13 billion to partially repay the taxpayer-funded bailout and reduce the U.S. Treasury to a minority shareholder.

GM’s filing with the U.S. Securities and Exchange Commission was the final step before it begins marketing what is expected to be one of the largest-ever initial public offerings. The investors are expected to span the globe and include sovereign wealth funds.

The automaker plans to sell 365 million common shares at $26 to $29 each, raising about $10 billion at the midpoint, according to the updated IPO papers filed with the SEC.

In addition, GM said it planned to sell about $3 billion of preferred shares that would convert to common shares under mandatory provisions, a less risky form of equity that could attract dividend and growth-fund investors.

The IPO would value GM at just over $41 billion at the midpoint of the price range. Assuming exercise of warrants that are in-the-money, the share count jumps roughly 300 million to 1.8 billion, and GM’s value rises to just under $49 billion.

If everything goes as planned, the offering would be the largest U.S. IPO since Visa Inc.’s $19.7 billion IPO in 2008.

GM’s underwriters could sell an additional 54.75 million common shares and 9 million preferred shares if the IPO attracts robust investor demand, raising another roughly $2 billion and potentially taking the total IPO amount to as much as $15.65 billion, the company said in the amended prospectus.

Once a blue-chip stock, GM is expected to return to the New York Stock Exchange under the “GM” ticker symbol as well as a listing on the Toronto Stock Exchange. GM is expected to price its IPO on Nov. 17 and begin trading on Nov. 18, sources said.

The governments of Canada and Ontario plan to sell down their combined stake to 9.64 percent from 11.67 percent and the UAW’s retiree health care trust fund is expected to reduce its stake to 15.33 percent from 19.93 percent.

GM plans to contribute $4 billion cash and $2 billion of common stock to its pensions after the IPO to address an area of investor concern.

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