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Taxpayers Will Take Big Losses on Auto Bailouts

Oversight Panel says $81 billion committed is largely at risk.

by on Sep.09, 2009

Click on chart to enlarge.

Click on chart to enlarge.

Taxpayers are not going to recover anywhere near the money they have invested in automakers and their subsidiaries, according to a report just released by the Congressional Oversight Panel.

The Panel, which is investigating  the U.S. Treasury Department’s Troubled Asset Relief Program (TARP), criticizes Treasury’s ongoing lack of transparency about the wildly unpopular auto bailouts.

The latest report follows the money and looks at how tens of billions of taxpayer dollars have been used to support Chrysler, General Motors, GMAC and parts makers.

In protecting the interests of taxpayers, the Panel found that Treasury “negotiated aggressively with all the players,” and now holds a combination of debt and equity in the reorganized Chrysler Group, General Motors Company and GMAC.

  • U.S. taxpayers have lent $49.9 billion of TARP funds in conjunction with GM’s bankruptcy and the subsequent creation of General  Motors Company.
  • The Chrysler transactions have spent $14.3 billion of TARP funding, of which $10.5 billion remains outstanding.
  • Assistance to automotive suppliers and investments in GMAC, the financial institution dedicated to automotive lending, account for another $16.9 billion of TARP resources.
  • Total TARP net support for the U.S. domestic automotive industry is slightly over $81 billion as of September 9, 2009.

A problem comes when  trying to figure out how much of this will be paid back. Earlier Congressional Budget Office estimates said that between 65% and 75% of the money was lost. The estimates, alas, still appear reasonable.

In the latest investigation, Treasury officials told the Panel staff that recovery of TARP investments in the automotive industry would be dependent upon the value of the stock that Treasury holds (or subsequently receives) in the two companies when they are able to go public. Therefore, the prospects for recovery of the TARP investments depend on the forecast for Chrysler and GM stock appreciation, which is something that cannot  be predicted.

However, in discussions with the Panel Treasury agreed with the Panel’s assessment that the new companies’ stock prices will have to appreciate sharply for taxpayers to be fully repaid.