Last Updated: March 16. 2011 2:02PM
Panel says jury out on auto bailout
Treasury goals not clearly stated, says oversight committee
David Shepardson / Detroit News Washington Bureau
Washington — The panel overseeing the $700 billion fund that was used to rescue Wall Street financial institutions and the U.S. auto industry says the jury is still out on whether the auto industry was salvaged for the long-term by the taxpayer-funded bailout.
In a final report released today, the bipartisan Congressional Oversight Panel, which has monitored the bailout for more than two years, said it will be difficult to determine the success of the $85 billion auto rescue "since Treasury has never clearly stated its goals in assisting the companies."
"The domestic automotive industry was trending downward before the financial crisis hit and it is unclear whether the (bailout) will ultimately reverse that trend in the long term," the panel said in its 236-page report.
The government once predicted taxpayers would lose more than $40 billion on the rescue — $25 billion of which was approved by President George W. Bush and $60 billion by the Obama administration — but has reduced its loss estimate to $17 billion.
Of the $700 billion authorized by Congress for the overall bailout, $389 billion was dispersed to banks, insurers and automakers. The Congressional Budget Office predicted in November that the government would lose $25 billion from the three industries, down from its initial $356 billion estimate.
Tim Massad, the Treasury official who oversees the Troubled Asset Relief Program, or TARP, told reporters on a conference call Tuesday that without the auto bailout, "We would have uncontrolled liquidations in the U.S. auto industry that could have resulted in another million jobs lost."
He noted that GM last year posted its first annual profit, $6.2 billion, since 2004. Chrysler reported an operating profit for 2010 and Ford Motor Co., which didn't get a government handout, reported $6.6 billion in profits.
"I don't think there's any doubt that this was a success," Massad said. "All anyone needs to do is ask autoworkers in Michigan or Ohio. Ask the CEOs."
But the report said the decision to rescue automakers raises the prospect that other big companies will take undue risks, counting on a government bailout if things go badly.
"The mere fact that Treasury intervened in the automotive industry, rescuing companies that were not banks and were not particularly interconnected within the financial system, extended the 'too big to fail' guarantee," the report said.
"The implication may seem to be that any company in America can receive a government backstop, so long as its collapse would cost enough jobs or deal enough economic damage."
But Massad noted that Congress passed financial reform legislation, which gives the government the power to liquidate troubled financial firms.
The oversight panel has been critical of the Treasury for, among other things, failing to exercise its ownership rights to direct the affairs of General Motors Co. and Ally Financial Inc., a primary auto financing source. The panel also questioned the decision to give Ally — formerly known as GMAC — a $17.2 billion bailout and criticized the government's early sale of its interest in Chrysler Financial, saying it lost $600 million.
At current share prices, the U.S. government would lose $9.8 billion on its $49.5 billion bailout of GM. It holds a 33 percent in the automaker.
GM spokesman Greg Martin said the Detroit-based automaker is looking forward.
"We're a new company with a bright future," Martin said. "Our long term prospects will remain strong if we remember past lessons, but more importantly, if we keep our energy and focus straight ahead on the customer and creating shareholder value."
The Government Accountability Office and the TARP special inspector general's office are reviewing aspects of the auto bailout and are expected to issue reports later this year.
dshepardson@detnews.com
(202) 662-8735
dshepardson@detnews.com
(202) 662-8735
