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entitled 'Auto Industry Financing Program: Status of Treasury's 
Investments in General Motors and Ally Financial' which was released 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

October 2013: 

Auto Industry Financing Program: 

Status of Treasury's Investments in General Motors and Ally Financial: 

GAO-14-6: 

GAO Highlights: 

Highlights of GAO-14-6, a report to congressional committees. 

Why GAO Did This Study: 

As part of its Auto Industry Financing Program (AIFP), funded through 
the Troubled Asset Relief Program (TARP), Treasury committed $67.3 
billion to automaker GM and to Ally Financial, a large bank holding 
company whose primary business is auto lending. TARP’s authorizing 
legislation mandates that GAO report every 60 days on TARP activities.
This report examines (1) the current financial condition of the two 
companies and (2) the status of Treasury’s investments in the 
companies and its plans to sell those investments. 

To examine the financial condition of GM and Ally Financial, GAO 
reviewed industry, financial, and regulatory data for the time period 
from the beginning of 2008 through the second quarter of 2013. GAO 
also reviewed Treasury reports and documentation detailing Treasury’s 
investments in GM and Ally Financial and its proposed strategies for 
divesting itself of the investments, as well as both companies’ 
financial filings and reports. In addition, GAO interviewed officials 
from Treasury, the Board of Governors of the Federal Reserve (Federal 
Reserve), GM, Ally Financial, and financial analysts who study GM and 
Ally Financial. 

In its written comments on a draft of this report, Treasury describes 
the auto industry’s recovery and the progress Treasury has made in 
unwinding its investments in GM and Ally Financial. Treasury, the 
Federal Reserve, GM, and Ally Financial also provided technical 
clarifications, which were incorporated, as appropriate. 

What GAO Found: 

Since receiving federal assistance, General Motors Company (GM) has 
shown increasingly positive financial results. For each of the past 3 
years, GM has reported profits, positive and growing operational cash 
flow, and a stable liquidity position. This improved financial 
performance has been reflected in GM’s credit rating, as each of the 
three largest credit rating agencies has increased GM’s long-term 
credit rating. However, GM faces continued challenges to its 
competitiveness. For instance, its market share of vehicles sold in 
North America remains smaller today than in 2008. Furthermore, GM 
continues to carry large pension liabilities.
With Treasury’s investments in Ally Financial, the company’s condition 
has stabilized. For example, Ally Financial’s capital and liquidity 
positions have stabilized or improved over the last 4 years. Such 
improvements have been noted by the three largest credit rating 
agencies, each of which has upgraded Ally Financial’s credit rating. 
However, Ally Financial’s credit rating remains below investment grade 
and its mortgage unit—Residential Capital LLC—impacted the company’s 
financial performance. The mortgage unit filed for bankruptcy in May 
2012, and these proceedings are ongoing. Analysts with whom GAO spoke 
indicated that the resolution of its mortgage unit’s bankruptcy will 
be a positive development for Ally Financial’s future financial 
performance. 

Figure: Status of Automotive Industry Financing Program, as of 
September 18, 2013: 

[Refer to PDF for image: horizontal bar graph] 

GM: 
Recovered by Treasury: $35.21 billion; 
plus: 
Outstanding principal: $15.82 billion; 
Equals: 
Total TARP assistance: $51.03 billion. 

Ally Financial: 
Recovered by Treasury: $2.54 billion; 
plus: 
Outstanding principal: $13.75 billion; 
Equals: 
Total TARP assistance: $16.29 billion. 

Total: 
Recovered by Treasury: $37.75 billion; 
plus: 
Outstanding principal: $29.57 billion; 
Equals: 
Total TARP assistance: $67.32 billion. 

Source: GAO analysis of Treasury data. 

Note: Numbers may not sum because of rounding. 

[End of figure] 

As of September 18, 2013, the Department of the Treasury (Treasury) 
has recovered about $35.21 billion of its $51 billion investment in GM 
and reduced its ownership stake from 60.8 percent to 7.32 percent. By 
early 2014, Treasury plans to fully divest its GM common shares 
through installments and estimates that it will lose at least 19 
percent of its original investment. Treasury is working to exit from 
Ally Financial with a recent agreement to sell all of its preferred 
stock to the company for approximately $6 billion, but Treasury faces 
challenges. As a regulated bank holding company, Ally Financial must 
be well capitalized to receive its regulator’s approval to repurchase 
shares from Treasury. Earlier this spring, Ally Financial’s tier 1 
common ratio fell below the required 5 percent in the Federal 
Reserve’s “stress test,” and the Federal Reserve objected to the 
company’s capital plan. Ally Financial also faces growing competition 
in the consumer lending and dealer financing sectors that could impact 
its financial performance in the future. The extent of Treasury’s 
recoupment on its Ally Financial investment will depend on the ongoing 
financial health of the company. 

View [hyperlink, http://www.gao.gov/products/GAO-14-6]. For more 
information, contact A. Nicole Clowers at (202) 512-8678 or 
clowersa@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Financial Condition of GM and Ally Financial: 

Treasury Is Working to Exit from Its Remaining Investments in GM and 
Ally Financial: 

Agency and Third Party Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of the Treasury: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: GM's Net Income, Operating Income and Cash Flow (in 
billions), 2008-2012: 

Table 2: Ally Financial Capital Ratios, 2009-2012: 

Table 3: Selected Financial Performance Metrics for Ally Financial, 
2009-2012: 

Figures: 

Figure 1: GM's North American Market Share, 2008-2013: 

Figure 2: Trends in GM's U.S. Pension Plans' Liabilities and Assets: 

Figure 3: Ally Financial Net Income (Loss) by Operating Unit, 2009-
2012: 

Figure 4: Ally Financial Liquidity Ratio, June 2009-June 2013: 

Figure 5: Ally Financial Operating Cash Flow, January 2009-June 2013: 

Figure 6: Breakeven Price for GM Shares Needed for Treasury to Fully 
Recoup Its Investment: 

Figure 7: Dollar Amount of Consumer Auto Loans for Five Large Bank 
Holding Companies, 2011-2013: 

[End of section] 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

October 29, 2013: 

Congressional Committees: 

In 2008 and 2009, the Department of the Treasury (Treasury) provided 
significant support to the automotive industry--including both auto 
manufacturers and automotive finance companies--after deteriorating 
economic conditions resulted in a dramatic decline in auto sales and 
significant financial losses in the industry. In particular, through 
the Automotive Industry Financing Program (AIFP) under the Troubled 
Asset Relief Program (TARP), Treasury committed approximately $51 
billion to help General Motors Company (GM).[Footnote 1] Through AIFP, 
Treasury also provided about $16.3 billion to GMAC, a financial 
services company whose businesses included providing consumer 
financing for vehicle purchases and dealer financing for inventory. In 
2010, GMAC LLC became Ally Financial, Inc. (Ally Financial).[Footnote 
2] While Treasury has recouped much of its investments in these 
companies--most notably, through GM's initial public offering (IPO) in 
November 2010--more than $29.57 billion of Treasury's assistance to GM 
and Ally Financial remained outstanding as of September 18, 2013. 
[Footnote 3] 

This report is based on our continuing analysis and monitoring of 
Treasury's activities in implementing the Emergency Economic 
Stabilization Act of 2008 (EESA), which provided GAO with broad 
oversight authorities for actions taken under TARP.[Footnote 4] This 
report examines (1) the financial condition of GM and Ally Financial 
and (2) the status of Treasury's investments in the companies and its 
plans to wind down those investments. 

To examine the financial condition of GM and Ally Financial, we 
reviewed financial and industry data for 2008 through 2013 for both 
companies. To assess GM's financial condition, we reviewed its net 
income, operating income, operating cash flow, credit ratings, sales 
of automobiles, share of the North American market, and pension 
obligations and pension plan funding for its U.S. employees. For Ally 
Financial, we reviewed capital ratios, net income, net interest 
spread, return on assets, nonperforming asset ratio, liquidity ratio, 
bank deposits, operating cash flow, and credit ratings. To describe 
the status of Treasury's investment in GM and Ally Financial, we 
reviewed Treasury's Section 105(a) Reports to Congress detailing the 
levels of the investments made in GM and Ally Financial, including the 
number of shares owned by Treasury and Treasury's daily transactions 
reports.[Footnote 5] We also interviewed Treasury officials. 

To analyze Treasury's plan to wind down its investments, we reviewed 
Treasury documentation relating to its exit from GM and Ally 
Financial. In addition, we reviewed the Board of Governors of the 
Federal Reserve System's (Federal Reserve) publicly available reports 
relating to its 2013 stress tests on bank holding companies with 
assets of $50 billion or more and the Comprehensive Capital Analysis 
and Review 2013.[Footnote 6] We also interviewed officials from 
Treasury, Federal Reserve, Federal Deposit Insurance Corporation 
(FDIC), GM, and Ally Financial. We assessed the completeness and 
accuracy of all data used in this report and determined they were 
sufficiently reliable for the purposes of this report. For each data 
source we reviewed the data for completeness and obvious errors, such 
as outliers, and determined that these data were sufficiently reliable 
for our purposes. We reviewed past GAO data reliability assessments to 
ensure that we, in all material respects, used the data in a similar 
manner and for similar purposes. For a more detailed discussion of the 
scope and methodology, please see appendix I. 

We conducted this performance audit from March 2013 to October 2013 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings based on our audit objectives. 

Background: 

The decision to provide substantial amounts of funding to the auto 
industry--more than 12 percent of all authorized TARP funds--and to 
accept equity in the companies in return for some of the assistance 
reflects Treasury's view of the automotive industry's importance to 
the U.S. economy. According to Treasury officials, Treasury provided 
assistance not simply because of the industry's importance, but 
because of the severity of the crisis and the desire to prevent 
significant disruption to the economy that would have resulted from 
uncontrolled liquidations of Chrysler and GM. To help stabilize the 
industry and avoid economic disruptions, Treasury disbursed $79.7 
billion through AIFP from December 2008 through June 2009. The 
majority of the assistance was used to support two automakers, 
Chrysler and GM, during restructuring, along with their automotive 
finance companies, Chrysler Financial and GMAC.[Footnote 7] In July 
2009, Treasury outlined guiding principles for the investments made to 
the auto industry, including: 

* exiting its investments as soon as practicable in a timely and 
orderly manner that minimizes financial market and economic impact; 

* protecting taxpayer investment and maximizing overall investment 
returns within competing constraints; 

* improving the strength and viability of GM and Chrysler so that they 
can contribute to economic growth and jobs without government 
involvement; and: 

* managing its ownership stake in a hands-off, commercial manner, 
including voting its shares only on core governance issues, such as 
the selection of a company's board of directors and major corporation 
events or transactions.[Footnote 8] 

Assistance to GM: 

GM is one of the world's largest automotive companies and does 
business in more than 120 countries worldwide. As of December 31, 
2012, it employed 213,000 workers worldwide and marketed vehicles 
through a network of independent retailers totaling 20,754 dealers. In 
North America, GM manufacturers and markets the following brands: 
Buick, Cadillac, Chevrolet, and GMC. 

Treasury provided a $13.4 billion loan in December 2008 to the Old GM 
to fund working capital.[Footnote 9] Treasury also lent $884 million 
to the Old GM for the purchase of additional ownership interests in a 
rights offering by GMAC. In April 2009, Treasury loaned an additional 
$6 billion to fund Old GM as it worked to submit a viable 
restructuring plan (working capital loan). These funds, along with 
loans from the Canadian government and concessions from nearly every 
stakeholder, including the company's primary labor union--the 
International Union, United Automobile, Aerospace and Agricultural 
Implement Workers of America (UAW)--were intended to give the 
companies time to restructure to improve their competitiveness and 
long-term viability. 

As a condition of receiving this assistance, Old GM was required to 
submit a plan to Treasury that would, among other things, identify how 
it intended to achieve and sustain long-term financial viability. GM's 
initial viability plan submitted in February 2009 was rejected. The 
plan established targets for addressing some of the company's key 
challenges to achieving viability, including reducing debt, numbers of 
brands and models, dealership networks, and production costs and 
capacity. In 2009, Old GM filed a voluntary petition for 
reorganization under Chapter 11 of the U.S. bankruptcy code. 
Subsequently, in June 2009, Treasury provided Old GM with $30.1 
billion under a debtor-in-possession financing agreement to assist 
during the restructuring.[Footnote 10] The newly organized GM was able 
to purchase most of the operating assets of the former company through 
a sale under Section 363 of the bankruptcy code.[Footnote 11] When the 
sale was completed on July 10, 2009, Treasury converted most of its 
loans into 60.8 percent of the common equity in GM and $2.1 billion in 
preferred stock.[Footnote 12] In addition, $6.7 billion of the TARP 
loans remained outstanding after the bankruptcy. In spring 2011, the 
bankruptcy was completed, and Old GM's remaining assets and 
liabilities were transferred to liquidating trusts. As we concluded in 
our past work, the federal assistance allowed GM to restructure its 
balance sheets and obligations through the bankruptcy code and tackle 
key challenges to achieving viability.[Footnote 13] 

Assistance to Ally Financial: 

Ally Financial, previously known as GMAC, formerly served as GM's 
captive auto finance company.[Footnote 14] The primary purpose of auto 
financing is to provide credit to consumers so that they can purchase 
automobiles. In determining how to finance their purchases, consumers 
have many financial institutions from which to choose, including 
banks, credit unions, and auto finance companies, all of which may 
offer loans or other credit accommodations for the purchase of new and 
used automobiles. In addition to consumer financing, auto dealers have 
also traditionally used manufacturers' finance companies to finance 
their purchase of the automobile inventory that they sell (known as 
floor-plan financing).[Footnote 15] 

Prior to the financial crisis, GMAC's subsidiaries expanded into other 
areas of financial services, such as auto insurance and residential 
mortgages, but GMAC remained a wholly owned subsidiary of the Old GM. 
In 2006, Cerberus Capital Management purchased 51 percent of the 
company. GM retained a 49 percent ownership stake. As the housing 
market declined in the late 2000s, the previously profitable GMAC 
mortgage business unit began producing significant losses. For 
example, the company's Residential Capital LLC (ResCap) subsidiary--
which by 2006 had grown to be the country's sixth-largest mortgage 
originator and fifth-largest mortgage servicer--lost approximately $17 
billion from 2007 through 2009. During the same time period, 
automobile sales in the U.S. dropped from 16.4 million to 10.4 
million, negatively affecting the company's core auto financing 
business. 

According to Treasury, Treasury determined that without government 
assistance GMAC would be forced to deny or suspend financing to 
creditworthy dealerships, leaving them unable to purchase automobile 
inventory for their lots.[Footnote 16] Without orders for automobiles 
from dealerships, GM would have been forced to slow or shut down its 
factories indefinitely to match the drop in demand. Given its 
significant overhead, a slow-down or stoppage of this magnitude would 
have caused GM to topple, according to Treasury. 

However, GMAC was not initially eligible for assistance under the TARP 
Capital Purchase Program (CPP).[Footnote 17] To become eligible for 
federal financial assistance, GMAC sought to convert GMAC Bank's 
charter from an industrial loan company into a commercial bank in 2008 
and applied to the Federal Reserve for bank holding company 
status.[Footnote 18] GMAC also submitted an application to participate 
in the Capital Purchase Program, conditional upon becoming a bank 
holding company. The Federal Reserve approved GMAC's bank holding 
company application in December 2008. Although GMAC originally applied 
for participation in CPP, in late December 2008, as a part of AIFP, 
Treasury agreed to purchase $5 billion in senior preferred equity from 
GMAC and received an additional $250 million in preferred shares 
through warrants that Treasury exercised immediately. 

Treasury subsequently provided GMAC with additional assistance through 
TARP. 

* In May 2009, Treasury purchased $7.5 billion of mandatory 
convertible preferred shares from GMAC.[Footnote 19] 

* In December 2009, Treasury purchased additional shares--$2.5 billion 
of trust preferred securities and approximately $1.3 billion of 
mandatory convertible preferred shares.[Footnote 20] Also, in December 
2009, Treasury converted $3 billion of existing mandatory convertible 
preferred shares into common stock, increasing its common equity stake 
from 35 percent to 56.3 percent. 

* In December 2010, Treasury converted preferred stock in Ally 
Financial that had a liquidation preference of $5.5 billion into 
common stock. This stock conversion resulted in Treasury's owning 
approximately 74 percent of Ally Financial. In addition, as of 
September 2013, Treasury continues to hold $5.9 billion of Ally 
Financial's mandatory convertible preferred shares. Ally Financial 
pays a 9.0 percent fixed dividend annually to Treasury on these 
preferred shares.[Footnote 21] As will be discussed later in this 
report, Ally Financial has entered into an agreement with Treasury to 
repurchase the mandatory convertible preferred shares with possible 
completion of the transaction sometime later this year. 

As of June 2013, Ally Financial was the 20th largest U.S. bank holding 
company, with total assets of $150.6 billion. Its primary line of 
business is auto financing--both consumer financing and leasing and 
dealer floor-plan financing. As a bank holding company, Ally Financial 
is regulated and supervised by the Federal Reserve.[Footnote 22] In 
addition, Ally Financial owns Ally Bank, an Internet and-telephone-
based, state-chartered nonmember bank that is supervised by the FDIC 
and the Utah Department of Financial Institutions. Ally Bank has over 
$92 billion in assets and $50.8 billion in total deposits, as of June 
30, 2013. 

Financial Condition of GM and Ally Financial: 

General Motors's Financial Results Have Been Increasingly Positive 
Since Receiving Federal Assistance, but Questions Remain: 

Since receiving federal assistance, GM has shown increasingly positive 
financial results. For each of the last 3 years, GM has reported 
profits, a positive and growing operating cash flow, and a stable 
liquidity position. This improved financial performance has been 
reflected in GM's credit ratings, with each of the three largest 
credit rating agencies increasing GM's long-term credit rating. 
Although Moody's upgraded GM's rating to investment grade on September 
23, 2013, Standard and Poor's and Fitch Ratings rate GM as below 
investment grade as of the same month. Furthermore, GM's market share 
of vehicles sold in North America was smaller than in 2008, and it 
continued to carry large pension liabilities. 

Based on our analysis of GM's reported financial data, the company's 
financial performance has improved since 2008. We assessed GM's 
financial performance by examining its reported net income, operating 
income, and operating cash flow.[Footnote 23] 

* Net income (loss): Net income (net profit or loss) is the difference 
between total revenues and expenses and represents the company's 
income after all expenses and taxes have been deducted. For 2010, 
2011, and 2012, GM reported net income of $6.5 billion, $9.3 billion, 
and $6.1 billion, respectively (see table 1). In 2008, prior to the 
federal government's assistance and Old GM's bankruptcy, GM reported a 
net loss of $30.9 billion. As we found in our prior work, a key result 
of the restructuring was that GM lowered its fixed costs by reducing 
the number of employees, plants, and dealerships, among other things. 
[Footnote 24] Reduced fixed costs allow GM to be profitable with fewer 
sales, thereby lowering its "break-even" level. 

* Operating income (loss): Operating income (loss) describes a 
company's profit and loss from its core operations. It is the 
difference between the revenues of a business and the related costs 
and expenses, excluding income from sources other than its core 
business (e.g., income derived from investments). GM reported 
operating income of $5.1 billion and $5.7 billion in 2010 and 2011, 
respectively (see table 1). In 2012, GM took an approximate $27 
billion goodwill impairment charge that significantly reduced its 
operating income, contributing to a $30.4 billion operating loss. 
[Footnote 25] 

* Operating cash flow: Operating cash flow refers to the amount of 
cash generated by a company's core business operations. Operating cash 
flow is important because it indicates whether a company is able to 
generate sufficient positive cash flow to maintain and grow its 
operations, or requires external financing. In its 2010, 2011, and 
2012 annual reports, GM reported operating cash flow of $6.6 billion, 
$7.4 billion, and $9.6 billion, respectively. Further, in 2010 GM 
reported total available liquidity from automotive operations of $32.5 
billion, including $5.9 billion from credit facilities. This amount 
had increased slightly by 2012, when GM reported total available 
liquidity of $37.2 billion, including $11.1 billion from credit 
facilities. Finally, GM reported current assets greater than current 
liabilities from 2010 through 2012, indicating that it could meet all 
current liabilities without additional financing. 

Table 1: GM's Net Income, Operating Income and Cash Flow, 2008-2012: 

Net income (loss): 
2008: ($30.9 billion); 
2010: $6.5 billion; 
2011: $9.3 billion; 
2012: $6.1 billion. 

Operating income (loss): 
2008: ($21.2 billion); 
2010: $5.1 billion; 
2011: $5.7 billion; 
2012: ($30.4 billion). 

Operating cash flow: 
2008: ($12.1 billion); 
2010: $6.6 billion; 
2011: $7.4 billion; 
2012: $9.6 billion. 

Source: GAO's review of GM filings with the Securities and Exchange 
Commission (SEC). Net income for 2010, 2011, and 2012 excludes non-
controlling interests. Data are from GM Form10-Ks, in the year they 
were reported. Subsequent adjustments may have been made in later 
corporate filings. 

Note: We did not include information for 2009 because GM began 
operations that year. Consequently, annual data for 2009 are not 
comparable to data for previous or subsequent years. Information for 
2008 is for Old GM. On July 10, 2009, GM applied fresh-start 
reporting, following the guidance in Accounting Standards Codification 
(ASC) 852, "Reorganizations" (ASC 852). The consolidated financial 
statements for the periods ended on or before July 9, 2009, do not 
include the effect of any changes in the fair value of assets or 
liabilities as a result of the application of fresh-start reporting. 
GM's financial information at and for any period after July 10, 2009, 
is not comparable to Old GM's financial information, which is provided 
only for reference. 

[End of table] 

These improvements in GM's financial performance have been reflected 
in its credit ratings. A credit rating is an assessment of the credit 
worthiness of an obligor as an entity or with respect to specific 
securities or money market instruments.[Footnote 26] Credit ratings 
are important because investors and financial institutions may 
consider them when making investment and lending decisions. The three 
largest credit rating agencies have each increased GM's long-term 
credit rating two steps in the past 3 years.[Footnote 27] Fitch 
Ratings and Standard and Poor's raised their long-term rating on GM 
from BB-to BB+. Moody's raised its long-term corporate family rating 
on GM from Ba2 to Baa3, an investment grade rating (i.e., the issuer 
or bond has a relatively low risk of default). Comparatively, Standard 
and Poor's also rates Ford Motor Company as one step below investment 
grade, with a positive outlook. Fitch and Moody's upgraded Ford to an 
investment grade rating in April and May 2012, respectively. Toyota, 
another competitor of GM, maintains an investment grade rating with 
all three of these credit rating agencies. 

Although GM's financial performance has improved significantly since 
the company initially received federal assistance, questions remain 
about competitiveness and costs. One of the factors in GM's improved 
financial condition has been increased sales of automobiles generally, 
including GM's, over the last 3 years. Overall, North American vehicle 
sales increased more than 23 percent from 2010 to 2012, rising from 
14.4 million to 17.8 million. Over this same period, sales of GM 
automobiles in North America increased 15 percent, from 2.6 million to 
3 million. However, GM's North American market share generally has 
declined over the past 5 years (see fig. 1).[Footnote 28] In 2008, GM 
reported capturing 21.5 percent of the North American market, compared 
with 16.9 percent in 2012. GM reported that its North American market 
share was 17.2 percent through the second quarter of 2013. 

Figure 1: GM's North American Market Share, 2008-2013: 

[Refer to PDF for image: vertical bar graph] 

Year: 2008: 21.5%. 

Year: 2009: 19%. 

Year: 2010: 18.2%. 

Year: 2011: 18.4%. 

Year: 2012: 16.9%. 

Year: 2013 (as of June 30): 17.2%. 

Source: GAO analysis of GM SEC filing. 

[End of figure] 

Another factor contributing to GM's financial performance has been its 
ability to control labor costs. GM's ability to remain competitive 
will also depend on its ability to continue to control costs, in 
particular its labor costs. Labor costs refer to the costs that GM 
incurs to pay workers to build its vehicles at factories in the United 
States and elsewhere. Through its restructuring, GM lowered labor 
costs, in part by reducing its workforce and making more efficient use 
of its remaining workers. For instance, it has closed plants and run 
additional shifts at existing plants, increasing production capacity 
at those plants. In September 2011, GM and the UAW reached an 
agreement on a new 4-year contract that would increase the company's 
labor costs by 1 percent annually, according to GM executives. In 
November 2011, the Center for Automotive Research (CAR) reported that 
GM's 2011 labor costs of $56/hour--while still among the highest in 
the industry--were in line with those of its competitors. CAR reported 
that Ford and Toyota had labor costs of $58 and $55 per hour, 
respectively. As we concluded in prior work, maintaining competitive 
labor costs in future negotiations is important to GM's bottom 
line.[Footnote 29] GM officials told us another important factor in 
maintaining competitiveness is GM's ability to design, build, and sell 
vehicles that customers want to purchase. 

Finally, GM's large pension obligations could have a potential impact 
on GM's costs. Based on our analysis of GM's filings with the 
Securities and Exchange Commission (SEC), GM reported U.S. pension 
plan assets of $68 billion and obligations of $82 billion in 2012, 
creating an underfunded position of approximately $14 
billion.[Footnote 30] This underfunded position is somewhat less than 
in fiscal year 2009, when it reported an underfunded position of $17.1 
billion. Prior to its receipt of government assistance and 
restructuring, GM had taken steps to reduce the risk it faced from its 
underfunded plan, including modifying or closing plans to new hires or 
halting further benefit accruals.[Footnote 31] More recently, it 
terminated its U.S. salaried retiree pension plan and offered retirees 
an option to receive a lump-sum settlement or an annuity contract with 
an insurance company. GM paid lump-sum payments totaling $3.6 billion 
and a total annuity premium of $27 billion in exchange for the 
insurance company assuming future obligations to the beneficiaries. 
Some analysts with whom we spoke saw this move as largely net neutral 
because of the amount of cash GM used to complete this transaction. 
Others viewed it somewhat positively for GM because, despite the cash 
used, the transfer reduces the risk of future volatility in the 
company's cash pension obligations. GM does not expect any mandatory 
contributions to the pension plans in the next several years.[Footnote 
32] Figure 2 shows the trends in GM's U.S. pension plans' liabilities 
and assets. 

Figure 2: Trends in GM's U.S. Pension Plans' Liabilities and Assets: 

[Refer to PDF for image: vertical bar graph] 

Year: 2008; 
Assets: $84.5 billion; 
Liabilities: $98.1 billion. 

Year: 2009; 
Assets: $84.5 billion; 
Liabilities: $101.6 billion. 

Year: 2010; 
Assets: $91 billion; 
Liabilities: $103.4 billion. 

Year: 2011; 
Assets: $94.3 billion; 
Liabilities: $108.6 billion. 

Year: 2012; 
Assets: $68 billion; 
Liabilities: $82.1 billion. 

Source: GAO analysis of GM SEC filing. 

Note: U.S. pension data were taken from the benefit obligations and the 
fair value of plan assets on December 31 of the corresponding year. 

[End of figure] 

Financial Condition of Ally Financial Has Stabilized, but Challenges 
Remain: 

With Treasury's investments in Ally Financial, the company's condition 
has stabilized. To assess Ally Financial's condition, we examined 
multiple capital, profitability, and liquidity measures. These 
measures suggest that Ally Financial's financial performance is 
improving. The three largest credit rating agencies have noted these 
improvements by upgrading Ally Financial's rating. However, the 
ratings remain below investment grade, and Ally's mortgage unit--
Residential Capital LLC--impacted the company's financial performance. 

Ally Financial's capital position has remained the same or improved 
since 2009. Capital can be measured in several ways, but we focused on 
tier 1 capital because it is currently the strongest form of capital. 
[Footnote 33] We examined Ally Financial's tier 1 capital ratio and 
tier 1 leverage ratio and compared them to minimums required under the 
Federal Reserve's capital adequacy guidelines for bank holding 
companies. We also examined Ally Financial's tier 1 common ratio. The 
Federal Reserve has long held the view that bank holding companies 
generally should operate with capital positions well above the minimum 
regulatory capital ratios, with amount of capital held commensurate 
with a bank holding company's risk profile.[Footnote 34] 

* Tier 1 capital and common capital ratios: A tier 1 capital ratio 
measures tier 1 capital as a percentage of risk-weighted assets. As 
shown in table 2, Ally Financial's tier 1 capital ratio increased from 
2009 to 2010 but declined slightly in 2011 and 2012. Federal Reserve 
Capital Adequacy Guidelines require bank holding companies to have a 
tier 1 risk-based capital ratio of at least 4 percent.[Footnote 35] 
Ally Financial's tier 1 one capital ratio met or exceeded the minimum 
ratio required each year from 2009 through 2012. A tier 1 common 
capital ratio measures common capital--that is, the common equity 
component of tier 1 capital as a share of risk-weighted assets. Ally 
Financial's tier 1 common ratio has increased from 4.85 percent at 
year-end 2009 to 6.98 percent at the end of the first quarter of 2013. 
[Footnote 36] Higher tier 1 capital and common capital ratios may 
indicate that a bank holding company is in a better position to absorb 
financial losses. 

* Tier 1 leverage ratio: A tier 1 leverage ratio shows the 
relationship between a banking organization's core capital and total 
assets. The tier 1 leverage ratio is calculated by dividing the tier 1 
capital by the firm's average total consolidated assets. Generally, a 
larger tier 1 leverage ratio indicates that a company is less risky 
because it has more equity to absorb losses in the value of its 
assets. Ally Financial's leverage ratio remained largely unchanged 
from 2009 through 2012 (see table 2). 

Table 2: Ally Financial Capital Ratios, 2009-2012: 

Tier 1 capital ratio; 
2009: 14.15%; 
2010: 15.00%; 
2011: 13.71%; 
2012: 13.13%. 

Tier 1 common capital ratio[A]; 
2009: 4.85%; 
2010: 8.57%; 
2011: 7.57%; 
2012: 6.98%. 

Tier 1 leverage ratio; 
2009: 12.70%; 
2010: 13.05%; 
2011: 11.50%; 
2012: 11.16%. 

Source: GAO's analysis of Ally Financial filings with SEC. Data are 
from Ally Financial Form10-Ks, in the year they were reported. 
Subsequent adjustments may have been made in later corporate filings. 

[A] Federal Reserve Capital Adequacy Guidelines do not require a 
minimum tier 1 common capital ratio. However, companies subject to the 
Federal Reserve's capital plan rule must develop a capital plan that 
demonstrates the company's ability to meet a tier 1 common ratio above 
5 percent under stressed conditions. See 12 CFR 225.8(d)(2) (i)(B). 

[End of table] 

Ally Financial's profitability has also improved since 2009. We 
examined several measures of profitability, including net income 
(loss), net interest spread, return on assets, and nonperforming 
assets ratio. 

* Net income (loss): Ally Financial suffered a net loss in 2009 of $10 
billion, but has reported net income for 2 of the last 3 years. As 
shown in figure 3, the 2009 loss was driven by substantial losses in 
its mortgage business operating unit. Ally Financial reported net 
income of $1.1 billion in 2010, a loss of $160 million in 2011, and 
net income of $1.2 billion in 2012. 

Figure 3: Ally Financial Net Income (Loss) by Operating Unit, 2009-
2012: 

[Refer to PDF for image: combined stacked vertical bar and line graph] 

Year: 2009; 
Automotive Finance: $0.33 billion; 
Insurance: $0.272 billion; 
Mortgage/ResCap: -$7.073 billion; 
Net income: -$10.298 billion. 

Year: 2010; 
Automotive Finance: $2.572 billion; 
Insurance: $0.569 billion; 
Mortgage/ResCap: $0.663 billion; 
Net income: 1.075 billion. 

Year: 2011; 
Automotive Finance: $1.333 billion; 
Insurance: $0.316 billion; 
Mortgage/ResCap: $$0.749 billion; 
Net income: -$0.0157 billion. 

Year: 2012; 
Automotive Finance: $2.316 billion; 
Insurance: $0; 
Mortgage/ResCap: $0.407 billion; 
Net income: $1.196 billion. 

Notes: Data are from Ally Financial 10-Ks, in the year they are 
reported. Subsequent adjustments may have been made in later corporate 
filings. Total reported net income does not always equal the sum of 
the three operating units because of the exclusion of "other" income. 

[End of figure] 

* Net interest spread: The net interest spread is the difference 
between the rate on total interest-earning assets and the rate on 
total interest-bearing liabilities, excluding discontinued operations 
for the period. In general, the larger the spread, the more a company 
is earning. Ally saw its net interest spread increase from a reported 
0.58 percent at the end of 2009 to 1.14 percent at the end of 2012 
(see table 3). 

* Return on assets (ROA): ROA is calculated by dividing a company's 
net income by its total assets. It is an indication of how profitable 
a company is relative to its total assets and gives an idea of 
management's efficiency in using its assets to generate earnings. A 
higher ROA suggests that a company is using its assets efficiently. 
Ally reported improved ROA from the end of 2009 to 2012, with a 
reported negative 5.79 percent ROA for 2009 and a positive .65 percent 
in 2012 (see table 3). 

* Nonperforming asset ratio: This ratio measures asset quality by 
dividing the value of nonperforming assets by the value of total 
assets. The lower the ratio, the fewer poorly performing assets a 
company holds. As shown in table 3, Ally's nonperforming asset ratio 
fell from 4.36 percent for the fourth quarter of 2009 to 1.06 percent 
for the fourth quarter of 2012. 

Table 3: Selected Financial Performance Metrics for Ally Financial, 
2009-2012: 

Financial performance metric: Net interest spread; 
2009: .58; 
2010: 1.23; 
2011: 1.07; 
2012: 1.14. 

Financial performance metric: Return on assets; 
2009: (5.79); 
2010: .61; 
2011: (.09); 
2012: .65. 

Financial performance metric: Nonperforming asset ratio[A]; 
2009: 4.36; 
2010: 3.46; 
2011: 2.69; 
2012: 1.06. 

Source: GAO analysis of Ally Financial filings with SEC. Data are from 
Ally Financial Form 10-Ks, in the year they were reported. Subsequent 
adjustments may have been made in later corporate filings. 

[A] Nonperforming asset ratio data from SNL Financial for December of 
corresponding year. 

[End of table] 

In addition, Ally Financial's liquidity position has generally 
stabilized since 2009. To examine Ally Financial's liquidity position, 
we examined the company's total liquidity ratio, bank deposits, and 
operating cash flow. 

* Total liquidity ratio: Liquidity ratios measure a bank's total 
liquid assets against its total liabilities. Generally, a high ratio 
indicates a relatively large margin of safety in covering short-term 
debts. Overall, Ally Financial's liquidity ratio remained stable from 
2009 through the third quarter of 2012 (see fig. 4). Reductions in the 
fourth quarter of 2012 ratio are associated with the repayment of $7.4 
billion in Temporary Liquidity Guarantee Program debt.[Footnote 37] 
For the quarter ending June 30, 2013, Ally Financial reported a total 
liquidity ratio of 18.7 percent. 

Figure 4: Ally Financial Liquidity Ratio, June 2009-June 2013: 

[Refer to PDF for image: line graph] 

Liquidity ratio: 

Year and quarter: 2009, Q2: 17.79%; 
Year and quarter: 2009, Q3: 14.9%; 
Year and quarter: 2009, Q4: 16.34%; 
Year and quarter: 2010, Q1: 15.51%; 
Year and quarter: 2010, Q2: 16.47%; 
Year and quarter: 2010, Q3: 14.31%; 
Year and quarter: 2010, Q4: 15.84%; 
Year and quarter: 2011, Q1: 16.71%; 
Year and quarter: 2011, Q2: 18.1%; 
Year and quarter: 2011, Q3: 17.73%; 
Year and quarter: 2011, Q4: 16.78%; 
Year and quarter: 2012, Q1: 16.44%; 
Year and quarter: 2012, Q2: 17.42%; 
Year and quarter: 2012, Q3: 18.22%; 
Year and quarter: 2012, Q4: 13.72%; 
Year and quarter: 2013, Q1: 15.85%; 
Year and quarter: 2013, Q2: 18.69%. 

Source: SNL. 

[End of figure] 

* Bank deposits: Bank deposits are the funds that consumers and 
businesses place with a bank, and growth in deposits is an important 
factor in the bank's liquidity position. From December 2008 to 
December 2012, Ally Bank saw its deposits grow from $19.2 billion to 
$46.9 billion. Deposits accounted for 37 percent of Ally's total 
funding as of the fourth quarter of 2012, offering the company a low-
cost source of funding that is less sensitive to interest rate changes 
and market volatility than other sources of funding.[Footnote 38] 

* Operating cash flow: From the first quarter of 2009 through the 
second quarter of 2013, Ally Financial generated positive cash flow 
from operating activities in all but 6 quarters (see fig. 5). However, 
as the figure shows, cash flows have also varied greatly over this 
period. In each of the last 3 years, the company repaid unsecured debt 
maturities averaging more than $10 billion, a move that could improve 
its cash flow by reducing the amount required to service its debt. 
Analysts expect Ally's annual unsecured maturities to be substantially 
lower going forward, and the company reported annual maturities of 
$5.6 billion or less for the years 2014 through 2018. 

Figure 5: Ally Financial Operating Cash Flow, January 2009-June 2013: 

[Refer to PDF for image: line graph] 

Year and quarter: 2009, Q1: -$1.654 million; 
Year and quarter: 2009, Q2: $3.935 million; 
Year and quarter: 2009, Q3: -$0.329 million; 
Year and quarter: 2009, Q4: -$7.084 million; 
Year and quarter: 2010, Q1: $7.373 million; 
Year and quarter: 2010, Q2: $4.21 million; 
Year and quarter: 2010, Q3: -$0.043 million; 
Year and quarter: 2010, Q4: $0.067 million; 
Year and quarter: 2011, Q1: $3.042 million; 
Year and quarter: 2011, Q2: $1.321 million; 
Year and quarter: 2011, Q3: $1.418 million; 
Year and quarter: 2011, Q4: -$0.288 million; 
Year and quarter: 2012, Q1: $2.142 million; 
Year and quarter: 2012, Q2: $2.798 million; 
Year and quarter: 2012, Q3: -$0.095 million; 
Year and quarter: 2012, Q4: $0.204 million; 
Year and quarter: 2013, Q1: $2.254 million; 
Year and quarter: 2013, Q2: $1.159 million. 

Source: SNL. 

[End of figure] 

Ally Financial's improving financial condition is reflected in its 
credit rating. Ally's long-term credit rating with two of the three 
largest credit rating agencies has seen multiple upgrades since 2009. 
Currently, Ally's long-term ratings with Moody's, Standard and Poor's, 
and Fitch Ratings are B1, B+, and BB-, respectively. However, these 
ratings all remain below investment grade. 

According to analysts with whom we spoke, Ally's mortgage unit, ResCap 
impacted the company's financial condition. Recent events are 
providing a clearer picture of Ally Financial's potential exposure to 
ResCap's obligations. ResCap filed for bankruptcy in May 2012. 
[Footnote 39] In June 2013, a bankruptcy judge approved a settlement 
agreement that releases Ally Financial from any and all legal claims 
by ResCap and many of its creditors in exchange for $2.1 billion in 
cash from Ally Financial and its insurers.[Footnote 40] In June 2013, 
the bankruptcy judge also granted ResCap permission to repay $1.1 
billion in debt owed to Ally.[Footnote 41] The agreement still must be 
incorporated into ResCap's formal plan for exiting bankruptcy and be 
approved by the bankruptcy court.[Footnote 42] Hearings on this 
agreement and related motions are scheduled to take place later this 
year. According to analysts with whom we spoke, knowing the amount of 
Ally Financial's final potential exposure to ResCap and that Ally 
Financial will no longer support ResCap financially are positive 
developments for the company's future financial condition. Treasury 
officials told us that in their view, the recent ResCap settlement 
agreement between the ResCap creditors (other than the FDIC and the 
FHFA) and Ally Financial resolves the uncertainty of the ResCap 
bankruptcy and Ally Financial's potential financial liabilities 
related to ResCap. 

Treasury Is Working to Exit from Its Remaining Investments in GM and 
Ally Financial: 

Treasury Plans to Exit from GM by Early 2014 but Projects a Loss on 
its Investment: 

Treasury invested over $51 billion in GM through AIFP. In exchange for 
this assistance, Treasury received 60.8 percent of the common equity 
in GM, $2.1 billion in preferred stock, and $7.1 billion in notes from 
GM. Through September 18, 2013, Treasury had recovered about $35.21 
billion of its investments in GM and reduced its ownership stake to 
7.32 percent through three major actions.[Footnote 43] As of September 
18, 2013, Treasury has recouped $37.75 billion from its GM and Ally 
Financial investment.[Footnote 44] 

First, Treasury participated in GM's IPO in November 2010, selling 
about 412.3 million shares at an average price per share of 
approximately $32.75. This sale generated $13.5 billion for Treasury 
and reduced its ownership share to 32 percent. As we found in our 2011 
report, by participating in GM's IPO, Treasury tried to fulfill two 
goals--to maximize taxpayers' return and to exit the company as soon 
as practicable.[Footnote 45] 

Second, GM and Treasury entered into an agreement that allowed GM to 
repurchase 200 million shares in December 2012. According to GM, as a 
general matter, GM was interested in reducing Treasury's interest in 
GM and facilitating Treasury's eventual complete exit from GM 
ownership. GM purchased the shares at $27.50 per share, about 7.8 
percent over the market price of about $25.50. This generated about 
$5.5 billion in revenue for Treasury and further reduced its ownership 
interest to just over 22 percent. GM officials said that they 
determined the premium price based on an arms-length negotiation 
between GM and Treasury. According to GM officials, the decision to 
agree to a premium price reflected the benefits GM and other 
stakeholders received from the transaction, including increased 
knowledge as to when and how Treasury was going to exit its holdings 
thereby eliminating the perceived "overhang" on GM's common stock 
price; mitigation of the stigma associated with the "Government 
Motors" moniker that negatively impacted customer perceptions; and the 
fact that the transaction was accretive to earnings. Furthermore, as 
part of the transaction, Treasury agreed to remove certain governance 
and reporting requirements. Treasury announced in December 2012 that 
it planned to divest fully of its GM common equity stake within 12-15 
months, subject to market conditions. 

Third, to achieve its goal of fully divesting by 2014, Treasury has 
developed and is implementing an exit strategy to sell its shares in 
tranches. Similar to the process Treasury used to divest its ownership 
in Citigroup, Treasury began placing its GM shares on the market in 
tranches, or "dribbles," for a specific time period, beginning in 
January 2013.[Footnote 46] Treasury reports these sales after the end 
of each period for selling a particular tranche. According to Treasury 
officials, in the case of GM, the dribble approach is a better 
divestment method than discrete large offerings given the remaining 
size of its equity holdings and time frame in which it is planning to 
exit. Furthermore, the dribble approach helps (1) secure the highest 
possible prevailing market price for taxpayers, (2) limit the impact 
of additional supply in the market, and (3) ensures that Treasury has 
flexibility to average the proceeds over time and make adjustments if 
necessary. As of September 2013, Treasury has sold over 811 million 
shares for more than $25 billion, leaving it with 101,336,666 shares 
which represent a 7.32 percent ownership stake in GM. On September 26, 
2013, Treasury announced it was launching a third pre-defined written 
trading plan for its GM common stock. 

Although Treasury has implemented a plan to divest itself of its 
ownership stake in GM, it does not anticipate fully recouping its 
investments. In September 2013, Treasury projected approximately at 
least a 19 percent loss on its GM investment. The extent of the loss, 
however, will depend on GM's stock price. As shown in figure 6, the 
price of GM's stock is not at the level needed for Treasury to fully 
recoup its investment. Nevertheless, according to Treasury officials, 
Treasury has continued to sell its shares in line with its guiding 
principle of exiting its TARP investments as soon as practicable while 
maximizing return to taxpayers. Doing so, however, has increased the 
break-even price--that is, the price the stock must reach for Treasury 
to fully recoup its investment--for its remaining shares. Based on our 
analysis, we estimate that GM's stock price would have to reach $156 
per share for Treasury to fully recoup its investment as of September 
16, 2013. At the beginning of September 2013, GM's stock was trading 
at around $36 per share. 

Figure 6: Breakeven Price for GM Shares Needed for Treasury to Fully 
Recoup Its Investment: 

[Refer to PDF for image: line graph] 

Closing share price: 

2011: 

May 2011-December 2012: 
Share price to fully recoup Treasury’s investment: $54. 

May; 
Break even price: $31.81. 

June; 
Break even price: $30.36. 

July; 
Break even price: $27.68. 

August; 
Break even price: $24.03. 

September; 
Break even price: $20.18. 

October; 
Break even price: $25.85. 

November; 
Break even price: $21.29. 

December; 
Break even price: $20.27. 

2012: 

January; 
Break even price: $24.02. 

February; 
Break even price: $26.0. 

March; 
Break even price: $25.65. 

April; 
Break even price: $23. 

May; 
Break even price: $22.2. 

June; 
Break even price: $19.72. 

July; 
Break even price: $19.71. 

August; 
Break even price: $21.35. 

September; 
Break even price: $22.75. 

October; 
Break even price: $25.5. 

November; 
Break even price: $25.88. 

December; 
Break even price: $28.83. 

2013: 

January-March, 2012: 
Share price to fully recoup Treasury’s investment: $72. 

January; 
Break even price: $28.09. 

February; 
Break even price: $27.15. 

March; 
Break even price: $27.82. 

April; 
Break even price: $30.84. 

May-August 2012: 
Share price to fully recoup Treasury’s investment: $85. 

May; 
Break even price: $33.89. 

June; 
Break even price: $33.3. 

July; 
Break even price: $35.8. 

August; 
Break even price: $34.08. 

September: 
Share price to fully recoup Treasury’s investment: $156. 

September; 
Break even price: $36.1. 

Source: GAO analysis. 

[End of figure] 

Treasury Is Working to Exit from Ally Financial and Faces Challenges 
Unwinding Its Investments: 

Although Treasury's ownership stake in Ally Financial has remained 
unchanged for the last 3 years at about 74 percent, the company has 
recently announced planned actions that will facilitate Treasury's 
exit, pending regulatory approval. As of September 2, 2013, Treasury 
has recovered about $2.5 billion of the $16.3 billion invested in Ally 
Financial from a sale of trust preferred shares.[Footnote 47] 
Treasury's remaining investment in Ally Financial consists of common 
stock and $5.9 billion in mandatory convertible preferred shares. In 
August 2013, Ally Financial announced plans, discussed below, to 
repurchase the mandatory convertible preferred shares. 

Treasury has stated that it would like to divest itself of its 
ownership stake in Ally Financial in a manner that balances the speed 
of recovery with maximizing returns for taxpayers. Furthermore, 
Treasury has stated that it will unwind its remaining common stock 
investment through a sale of stock (either public or private sale) or 
through future sales of assets. As of September 2013, Treasury has 
announced the plan for unwinding its preferred stock investments in 
Ally Financial, though not for its common stock investment. According 
to Treasury officials, Treasury will announce its precise plans for 
the common stock investment once it is ready to take action. 

To accelerate repayment of Treasury's investment and strengthen its 
longer term financial profile, Ally Financial announced in May 2012 
that it was undertaking two strategic initiatives. These initiatives 
were (1) the discontinuation of providing financial support to its 
subsidiary ResCap pursuant to the ResCap bankruptcy and (2) the sale 
of its international auto finance business. ResCap's mortgage business 
created significant uncertainty for Ally Financial and thus an 
impediment to Ally Financial's ability to repay Treasury's investment. 
Also, Ally Financial sought to sell its international operations as a 
means to accelerate repayment plans to Treasury. At the same time as 
Ally Financial's announcement last year, Treasury stated that the 
company's two strategic initiatives would put taxpayers in a stronger 
position to continue recovering their investment in Ally Financial. As 
previously noted, Ally Financial achieved a settlement agreement with 
the ResCap creditors, which was approved by the bankruptcy court in 
June 2013. In addition, during the second quarter of 2013, Ally 
Financial completed the sale of its international auto finance 
business in Europe and the majority of its finance operations in Latin 
America. Ally Financial plans to complete the sale of its remaining 
international assets--its operations in Brazil and its joint venture 
in China--in late 2013 and 2014, respectively. 

However, in exiting its Ally Financial investment, Treasury faces 
challenges and considerations, including Ally Financial's failure to 
meet Federal Reserve capital requirements and competition from other 
institutions, which may ultimately affect the price of Ally Financial 
stock once the company is publicly traded. 

Capital Requirements: 

In contrast to GM, Ally Financial is a regulated bank holding company 
that must receive the Federal Reserve's approval before it can 
repurchase its preferred shares from Treasury. However, Ally 
Financial's initial plan to repurchase the mandatory convertible 
preferred shares stalled after the Federal Reserve objected to its 
proposed capital plan in the spring 2013 Comprehensive Capital 
Analysis and Review (CCAR). The Dodd-Frank Wall Street Reform and 
Consumer Protection Act requires the Federal Reserve to conduct an 
annual supervisory stress test of bank holding companies with $50 
billion or more in total consolidated assets to evaluate whether the 
companies have sufficient capital to absorb losses resulting from 
adverse economic conditions.[Footnote 48] As part of the stress test 
for each company, the Federal Reserve projects revenue, expenses, 
losses, and resulting post-stress test capital levels, regulatory 
capital ratios, and the tier 1 common ratio under three scenarios 
(baseline, adverse, and severely adverse).[Footnote 49] In March 2013, 
the Federal Reserve reported the results of its most recent 
supervisory stress test and of the CCAR exercise. The Federal Reserve 
found that Ally Financial's tier 1 common capital ratio fell below the 
required 5 percent under the severely adverse scenario. Ally Financial 
was the only one of the 18 bank holding companies tested that fell 
below this required level.[Footnote 50] 

Further, as previously indicated, the Federal Reserve objected to Ally 
Financial's capital plans during the 2013 CCAR.[Footnote 51] CCAR is 
an annual exercise the Federal Reserve conducts to help ensure that 
financial institutions have robust, forward-looking capital planning 
processes that take into account their unique risks and sufficient 
capital to continue operating during periods of economic and financial 
stress.[Footnote 52] As part of the CCAR process, the Federal Reserve 
evaluates institutions' capital adequacy; internal processes for 
assessing capital adequacy; plans to make capital distributions, such 
as dividend payments or stock repurchases; and other actions that 
affect capital.[Footnote 53] The Federal Reserve may object to a 
capital plan because of significant deficiencies in the capital 
planning process or because one or more relevant capital ratios would 
fall below required levels under the assumption of stress and planned 
capital distributions.[Footnote 54] If the Federal Reserve objects to 
the proposed capital plan, the bank holding company is only permitted 
to make capital distributions if the Federal Reserve indicates in 
writing that it does not object and must resubmit the capital plan to 
the Federal Reserve following remediation of these deficiencies. 
[Footnote 55] Of the 18 bank holding companies reviewed in 2013, the 
Federal Reserve objected to Ally Financial's and one other company's 
capital plans.[Footnote 56] 

According to the Federal Reserve, Ally Financial's capital ratios did 
not meet the required minimums under the proposed capital plan. 
Specifically, the Federal Reserve reported that under stress 
conditions Ally Financial's plan resulted in a tier 1 ratio of common 
capital to assets of 1.52 percent, which is below the required level 
of 5 percent under the capital plan rule. According to the Federal 
Reserve report, these results assumed that Ally Financial remained 
subject to contingent liabilities associated with ResCap. The Federal 
Reserve has required Ally Financial to resubmit a capital plan. 
[Footnote 57] Ally Financial resubmitted its new capital plan to the 
Federal Reserve in September 2013, and in accordance with federal 
regulation, the Federal Reserve will have 75 days to review the plan. 
[Footnote 58] 

On August 19, 2013, Ally Financial announced that it had entered into 
agreements with certain accredited investors to issue and to sell to 
them an aggregate of 166,667 shares of its common stock (private 
placement securities) for an aggregate purchase price of $1 billion. 
Ally Financial did not identify the investors. According to Ally 
Financial, the agreement would strengthen the company's common equity 
base and support its capital plan resubmission to the Federal Reserve. 
The agreement requires that the private placement close no later than 
November 30, 2013. Also on August 19, Ally Financial and Treasury 
entered into an agreement under which Ally Financial is to repurchase 
all of the mandatory convertible preferred shares. The agreement is 
conditioned on Ally Financial receiving a non-objection by the Federal 
Reserve on its resubmitted CCAR capital plan and the closing of the 
private placement securities transaction. 

Competition from Other Lenders: 

Ally Financial faces growing competition in both consumer lending and 
dealer financing from Chrysler Capital, GM Financial, and other large 
bank holding companies. This competition may affect the future 
profitability of Ally Financial, which could influence the share price 
of Ally Financial once the company becomes publicly traded and thus 
the timing of Treasury's exit. Similar to its GM investment, the 
eventual amount of Treasury's recoupment on its Ally Financial 
investment will be determined by the share price of Ally Financial 
stock. 

* Chrysler Capital: In February 2013, Chrysler announced that it had 
entered into an agreement with Santander Consumer USA Inc., a 
subsidiary of Banco Santander, S.A., that specializes in subprime auto 
lending, to provide a full spectrum of auto financing services to 
Chrysler Group customers and dealers under the name of Chrysler 
Capital. Under the 10-year, private-label agreement, Santander 
Consumer USA was to establish a separate lending operation dedicated 
to providing financial services under the Chrysler Capital name, 
including financing for retail loans and leases, new and used vehicle 
inventory, dealership construction, real estate, working capital, and 
revolving lines of credit. The agreement grants Santander Consumer USA 
the right to a minimum percentage of Chrysler's subvention volume and 
the right to use the Chrysler Capital name for its auto loan and lease 
offerings.[Footnote 59] Santander Consumer USA will also provide loans 
to Chrysler dealers to finance inventory, working capital, and capital 
improvements. On May 1, 2013, Chrysler Capital started its lending 
operations. 

* GM Financial: In 2009, GM acquired AmeriCredit Corporation 
(AmeriCredit), a subprime automobile finance company, to serve its 
subprime customers. AmeriCredit was renamed GM Financial and made a 
wholly owned subsidiary of GM. Its target lending market is lending to 
consumers who have difficulty securing auto financing from banks and 
credit unions. According to GM officials, the purpose of GM Financial 
is to drive incremental GM automobile sales by providing solid and 
stable funding for GM dealers and consumers. GM Financial would serve 
as a captive lender for GM, much as GMAC did. This year, GM Financial 
increased its overall assets by purchasing Ally Financial's 
international assets in Europe and Latin America, including the dealer 
financing arrangements in these countries. 

* Other bank holding companies: We compared the amount of Ally 
Financial consumer auto lending with four large bank holding companies 
(Bank of America Corporation, Capital One Financial Corporation, 
JPMorgan Chase & Company, and Wells Fargo & Company) that reported 
consumer automobile loans. These data do not include all types of 
automobile financing, such as automobile leasing and dealer financing, 
only retail consumer automobile loans for the time period.[Footnote 
60] As shown in figure 7, the dollar amount of consumer auto loans 
Wells Fargo & Company and Capital One Financial Corporation made 
increased from March 2011 through June 2013. However, Ally Financial 
remained the leader among the four institutions for the same time 
period. 

Figure 7: Dollar Amount of Consumer Auto Loans for Five Large Bank 
Holding Companies, 2011-2013: 

[Refer to PDF for image: multiple line graph] 

2011, Q1; 
Ally Financial: $50.5 billion; 
Wells Fargo: $43.7 billion; 
JPMorgan Chase & Co.: $40.0 billion; 
Capital One Financial Corp: $18.4 billion; 
Bank of America Corp: $30.9 billion. 

2011, Q2; 
Ally Financial: $52.4 billion; 
Wells Fargo: $43.9 billion; 
JPMorgan Chase & Co.: $39.6 billion; 
Capital One Financial Corp: $19.2 billion; 
Bank of America Corp: $31.7 billion. 

2011, Q3; 
Ally Financial: $54.1 billion; 
Wells Fargo: $43.7 billion; 
JPMorgan Chase & Co.: $39.8 billion; 
Capital One Financial Corp: $20.4 billion; 
Bank of America Corp: $33.4 billion. 

2011, Q4; 
Ally Financial: $57.8 billion; 
Wells Fargo: $43.5 billion; 
JPMorgan Chase & Co.: $39.3 billion; 
Capital One Financial Corp: $21.8 billion; 
Bank of America Corp: $33.0 billion. 

2012, Q1; 
Ally Financial: $61.215; 
Wells Fargo: $44.2 billion; 
JPMorgan Chase & Co.: $39.5 billion; 
Capital One Financial Corp: $23.6 billion; 
Bank of America Corp: $30.5 billion. 

2012, Q2; 
Ally Financial: $62.1 billion; 
Wells Fargo: $45.2 billion; 
JPMorgan Chase & Co.: $39.4 billion; 
Capital One Financial Corp: $25.2 billion; 
Bank of America Corp: $27.1 billion. 

2012, Q3; 
Ally Financial: $63.9 billion; 
Wells Fargo: $46.0 billion; 
JPMorgan Chase & Co.: $40 billion; 
Capital One Financial Corp: $26.4 billion; 
Bank of America Corp: $26.5 billion. 

2012, Q4; 
Ally Financial: $64.8 billion; 
Wells Fargo: $46 billion; 
JPMorgan Chase & Co.: $39.3 billion; 
Capital One Financial Corp: $27.1 billion; 
Bank of America Corp: $26.6 billion. 

2013, Q1; 
Ally Financial: $60.4 billion; 
Wells Fargo: $47.3 billion; 
JPMorgan Chase & Co.: $40.3 billion 
Capital One Financial Corp: $27.9 billion; 
Bank of America Corp: $26.8 billion. 

2013, Q2; 
Ally Financial: $54.7 billion; 
Wells Fargo: $48.6 billion; 
JPMorgan Chase & Co.: $40.9 billion; 
Capital One Financial Corp: $29.7 billion; 
Bank of America Corp: $27.4 billion. 

Source: GAO Analysis of Consolidated Financial Statements for Holding 
Companies, Federal Reserve Board. 

[End of figure] 

Treasury officials noted that such competition could also be a benefit 
because Ally Financial's assets could be viewed as valuable to the 
other competitors. Treasury officials noted that the value of Ally 
Financial can be demonstrated by the recent private placement 
agreement. Specifically, if Treasury sells its Ally Financial common 
stock at the share price agreed to in the private placement agreement--
$6,000 per share--Treasury would receive a significant profit on its 
Ally Financial investment. 

Agency and Third Party Comments: 

We provided a draft of this report to FDIC, the Federal Reserve and 
Treasury for their review and comment. In addition, we provided 
excerpts of the draft report to Ally Financial, GM, and Chrysler 
Capital to help ensure the accuracy of our report. 

Treasury provided written comments which are reprinted in appendix II. 
Treasury agreed with the report's overall findings. In its written 
comments, Treasury describes the auto industry's recovery and the 
progress Treasury has made in unwinding its investments in Ally 
Financial and GM. Treasury also noted that it expects to complete the 
exit from GM by the first quarter of 2014 and wind down the remaining 
Ally Financial investment either by selling stock in a public or 
private offering, or through future asset sales. 

The Federal Reserve, Treasury, Ally Financial, GM, and Chrysler 
Capital provided technical comments that we incorporated as 
appropriate. In its technical comments, GM highlighted what third 
parties have suggested could have happened had Treasury not provided 
assistance to the auto industry, including the potential adverse 
effects on unemployment levels and tax receipts of all levels of 
government. FDIC did not provide any comments. 

We are sending copies of this report to the appropriate congressional 
committees. This report will also be available at no charge on our 
website at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-8678 or clowersa@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. Key contributors to this report are 
listed in appendix III. 

Signed by: 

A. Nicole Clowers: 
Director: 
Financial Markets and Community Investment: 

List of Committees: 

The Honorable Barbara Mikulski: 
Chairwoman: 
The Honorable Richard C. Shelby: 
Vice Chairman: 
Committee on Appropriations: 
United States Senate: 

The Honorable Tim Johnson: 
Chairman: 
The Honorable Mike Crapo: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Patty Murray: 
Chairman: 
The Honorable Jeff Sessions: 
Ranking Member: 
Committee on the Budget: 
United States Senate: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Orrin G. Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Hal Rogers: 
Chairman: 
The Honorable Nita Lowey: 
Ranking Member: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Paul Ryan: 
Chairman: 
The Honorable Chris Van Hollen: 
Ranking Member: 
Committee on the Budget: 
House of Representatives: 

The Honorable Jeb Hensarling: 
Chairman: 
The Honorable Maxine Waters: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Dave Camp: 
Chairman: 
The Honorable Sander Levin: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report is based on our continuing analysis and monitoring of the 
U.S. Department of the Treasury's (Treasury) activities in 
implementing the Emergency Economic Stabilization Act of 2008 (EESA), 
which provided GAO with broad oversight authorities for actions taken 
under the Troubled Asset Relief Program (TARP).[Footnote 61] Under 
TARP, Treasury established the Automotive Industry Financing Program, 
through which Treasury committed $51 billion to help General Motors 
Company (GM) and $16.3 billion to GMAC LLC, a financial services 
company that provides automotive financing and that later became Ally 
Financial, Inc. (Ally Financial). 

This report examines (1) the financial condition of GM and Ally 
Financial and (2) the status of Treasury's investments in the 
companies as well as its plans to wind down those investments. 

To assess the financial conditions of GM, we analyzed net income, 
operating income, operating cash flow, operating income, sales of 
automobiles, GM's share of the North American market, credit ratings, 
and pension obligations and pension plan funding for GM's U.S. 
employees from 2008 through the second quarter (June 30) of 2013. For 
Ally Financial, we reviewed the institution's capital ratios, net 
income, operating income, net interest spread, return on assets, 
nonperforming assets ratio, liquidity ratio, bank deposits, operating 
cash flow, and credit ratings from 2008 through the second quarter 
(June 30) of 2013. To obtain information on the financial ratios and 
indicators used in their analyses of GM's or Ally Financial's 
financial condition, we interviewed staff from Treasury, the Board of 
Governors of the Federal Reserve System (Federal Reserve), Federal 
Deposit Insurance Corporation (FDIC), GM, Ally Financial, and analysts 
from the three largest credit rating agencies as well as investment 
firms. To select analysts from investment firms to interview, we 
identified analysts who covered GM. We identified them using GM's 
investor relations webpage [hyperlink, 
http://www.gm.com/company/investors/analyst-coverage.html] and 
selected four to contact based on an electronic search for automotive 
equity analysts cited in reputable trade and business publications. 
[Footnote 62] We reached out to four analysts and interviewed two. We 
also interviewed analysts responsible for covering GM from one of the 
credit rating agencies and analysts responsible for covering Ally from 
all three of the credit rating agencies. The views of these analysts 
cannot be generalized to all analysts from investment firms and credit 
rating agencies. 

We reviewed past GAO reports, information from GM's and Ally 
Financial's annual 10-K filings with the Securities and Exchange 
Commission, reports and documentation from Treasury and the companies, 
and data from SNL Financial from 2008 through the second quarter (June 
30) of 2013. For both GM and Ally Financial, we collected information 
from 2008 through the second quarter (June 30) of 2013, the most 
recent information that was publicly available. We have relied on SNL 
Financial data for past reports, and we reviewed past GAO data 
reliability assessments to ensure that we, in all material respects, 
used the data in a similar manner and for similar purposes. For each 
data source we reviewed the data for completeness and obvious errors, 
such as outliers, and determined that these data were sufficiently 
reliable for our purposes. We also reviewed the credit ratings from 
three rating agencies for each of these companies. Although we have 
reported on actions needed to improve the oversight of rating 
agencies, we included these ratings because they are widely used by 
GM, Ally Financial, Treasury, and market participants. 

To examine the status of Treasury's investments and its plans to wind 
down those investments, we reviewed Treasury's TARP reports, which 
included monthly 105(a) and daily TARP updates on AIFP program data 
for the time period from 2008 through September 2013.[Footnote 63] We 
have used Treasury's data on AIFP in previous GAO reports. We 
determined that the AIFP program data from Treasury were sufficiently 
reliable to assess the status of the program. For example, we tested 
the Office of Financial Stability's internal controls over financial 
reporting as they related to our annual audit of the office's 
financial statements and found the information to be sufficiently 
reliable based on the results of our audit of the TARP financial 
statements for fiscal years 2009, 2010, 2011, and 2012.[Footnote 64] 
AIFP was included in these financial audits. Using the AIFP program 
data, we analyzed Treasury's equity ownership and recovery of funds in 
GM and Ally Financial for the time period from January 2009 to 
September 2013. We reviewed the data for completeness and obvious 
errors, such as outliers, and determined that these data were 
sufficiently reliable for our purposes. For the divestment of GM 
equity, we interviewed Treasury and GM officials on the December 2012 
repurchase of GM shares and the "dribble" strategy developed by 
Treasury. For analyzing Treasury's exit from Ally Financial, we 
reviewed Treasury and Federal Reserve documentation, such as 
Treasury's monthly reports to Congress, Treasury's contractual 
agreements for the mandatory convertible preferred shares, and the 
proposed capital plan that Ally submitted to the Federal Reserve. We 
also reviewed two publicly available reports from the Federal Reserve 
on the Dodd-Frank Wall Street Reform and Consumer Protection Act and 
capital plan analysis, Dodd-Frank Act Stress Test 2013: Supervisory 
Stress Test Methodology and Results and Comprehensive Capital Analysis 
and Review 2013: Assessment Framework and Results.[Footnote 65] In 
addition, we interviewed officials from Treasury's Office of Financial 
Stability, Federal Reserve, Federal Reserve Bank of Chicago, FDIC, GM, 
and Ally Financial. 

We conducted this performance audit from March 2013 to October 2013 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Department of the Treasury: 

Department of the Treasury: 
Assistant Secretary: 
Washington, D.C. 

October 2,2013: 

A. Nicole Clowers: 
Director, Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Re: Response to GAO's Draft Report: "Auto Industry Financing Program: 
Status of Treasury's Investments in General Motors and Ally Financial" 

Dear Ms. Clowers: 

Thank you for the opportunity to review the Government Accountability 
Office's (GAO) draft report of September 17,2013 titled "Auto Industry 
Financing Program: Status of Treasury's Investments in General Motors 
and Ally Financial." This letter provides Treasury's official response 
to the report. 

Treasury appreciates GAO's analysis of the American auto industry's 
improvement since the financial crisis, when it was on the brink of 
collapse. Indeed, the actions taken by the Obama Administration to 
protect the broader economy by stabilizing the auto industry gave the 
industry a new lease on life -both General Motors (GM) and Chrysler 
are now profitable and creating jobs at the fastest pace in 15 years. 
Moreover, at least 340,000 jobs have been created since June 2009 when 
GM and Chrysler emerged from bankruptcy. 

We also welcome GAO's acknowledgment that Treasury has made 
significant progress in unwinding its investments in GM and Ally 
Financial (Ally), formerly known as GMAC. In fact, Treasury announced 
last week that it has recouped more than 70 percent of the initial 
investment in GM and reduced the taxpayer's stake of GM stock from 
over 60 percent at the peak to approximately 7 percent today. Also 
last week, Treasury announced that it will continue its sales of GM 
common stock by launching a third pre-defined written trading plan. We 
still expect to complete the exit from GM by the first quarter of 2014. 

Ally has succeeded in implementing the strategy we announced in May 
2012 to sell its international auto finance business and resolve the 
legacy mortgage liabilities related to its subsidiary, Residential 
Capital, LLC. In addition, Treasury recently announced that Ally will
repay taxpayers an additional $6 billion, subject to Federal Reserve 
approval of a transaction announced in August. After that transaction 
closes, Treasury will have recovered more than two-thirds of the 
taxpayer's investment in Ally. We expect to wind down the remaining Ally
investment either by selling stock in a public or private offering, or 
through future asset sales, balancing the speed of our exit with 
maximizing the return for taxpayers. 

While there is still more to work to be done, the decision to rescue 
the American auto industry helped the economy recover from the 
financial crisis and enabled the auto industry to come roaring back. 

Thank you once again for the opportunity to review and comment on the 
report. We look forward to continue working with you in the future. 

Sincerely, 

Signed by: 

Timothy G. Massad: 
Assistant Secretary for Financial Stability: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

A. Nicole Clowers, (202) 512-8678, clowers@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Raymond Sendejas (Assistant 
Director), Bethany Benitez, Emily Chalmers, Nancy Eibeck, Matthew 
Keeler, Risto Laboski, Sara Ann Moessbauer, Marc Molino, and Roberto 
Pinero made key contributions to this report. 

[End of section] 

Footnotes: 

[1] Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343, 
§ 101, 122 Stat. 3765, 3767 (codified at 12 U.S.C. § 5211). This 
report focuses on GM and Ally Financial and does not examine the 
assistance provided to other auto manufacturers or auto financing 
companies through AIFP, including Chrysler Holdings. 

[2] GMAC renamed itself Ally Financial, Inc., in 2009 and expanded its 
depository banking operation under the name of Ally Bank. For this 
report, we use GMAC to refer to the company for activities and events 
that predate the name change. 

[3] The amount outstanding does not include write-offs and realized 
losses that Treasury has absorbed and dividends, interest, and other 
income that Treasury has realized on its investments. 

[4] Pub. L. No. 110 -343, § 116, 122 Stat. 3765 3783 (codified at 12 
U.S.C. § 5226). 

[5] Under EESA, every 30 days, Treasury must submit to Congress 
reports on actions taken and funds obligated and spent during the 
reporting period as well as detailed financial statements covering, 
among other items, agreements made, assets purchased, transactions 
that occurred, and the valuation or pricing method used for each 
transaction. § 105(a), 122 Stat. at 3771-72. 

[6] Stress testing is one tool that helps bank supervisors measure 
whether a bank holding company has enough capital to support its 
operations throughout periods of stress. The Dodd-Frank Wall Street 
Reform and Consumer Protection Act requires the Federal Reserve to 
perform an annual stress test of bank holding companies with $50 
billion or more in total consolidated assets. Pub. L. No. 111-203, § 
165(i)(1)(A), 124 Stat. 1376, 1430 (2010)(codified at 12 U.S.C. § 
5365(i)(1)(A)). The Comprehensive Capital Analysis and Review is an 
annual assessment by the Federal Reserve of the internal capital 
planning process and capital adequacy of large, complex U.S. bank 
holding companies. 12 C.F.R. §225.8. 

[7] Treasury disbursed a total of $12.4 billion to Chrysler-related 
entities including Old Chrysler and New Chrysler. Of the $12.4 billion 
that was disbursed to Chrysler-related entities under TARP, Treasury 
collected more than $11.1 billion through principal repayments, sale 
of investments, and interest. While Treasury retains a right to 
receive proceeds from a liquidation trust related to Old Chrysler, no 
significant future cash flows are expected. Treasury completed its 
exit from New Chrysler in July 2011. 

[8] Treasury established two other programs under AIFP--the Auto 
Supplier Support Program and the Auto Warranty Commitment Program. The 
Auto Supplier Support Program was designed to ensure that automakers 
received the parts and components they needed to manufacture vehicles 
and that suppliers had access to liquidity on their receivables. Under 
this program, GM and Chrysler received loans, all of which have been 
repaid. The Auto Warranty Commitment Program was designed to mitigate 
consumer uncertainty about purchasing vehicles from the restructuring 
automakers by providing funding to guarantee the warranties on new 
vehicles from those automakers. Funds were provided to GM and Chrysler 
under this program, but both companies were able to continue to honor 
consumer warranties and the funds have been repaid in full. 

[9] General Motors Company is a new legal entity that was created 
through the bankruptcy process to purchase substantially all of the 
operating assets of the former firm. Throughout this report, we refer 
to the prereorganization company as "Old GM" and the 
postreorganization company as "GM." 

[10] A debtor-in-possession financing agreement is financing arranged 
by a company while under a Chapter 11 bankruptcy reorganization. 

[11] 11 U.S.C. § 363 (2010). 

[12] Preferred stock is equity ownership that usually pays a fixed 
dividend and gives the holder a claim on corporate earnings that is 
superior to the claims of common stock owners. Preferred stock also 
has priority in the distribution of assets when a bankrupt company is 
liquidated. 

[13] GAO, TARP: Treasury's Exit from GM and Chrysler Highlights 
Competing Goals, and Results of Support to Auto Communities Are 
Unclear, [hyperlink, http://www.gao.gov/products/GAO-11-471] 
(Washington, D.C.: May 10, 2011). 

[14] A captive auto lender's primary business is to finance the 
purchase of a specific manufacturer's automobiles. 

[15] Floor-plan, or wholesale, lending is a form of retail goods 
inventory financing in which each loan advance is made against a 
specific piece of collateral. As each piece of collateral is sold by 
the dealer, the loan advance against that piece of collateral is 
repaid. Items commonly subject to floor-plan debt are automobiles, 
large home appliances, furniture, television and stereo equipment, 
boats, mobile homes, and other types of merchandise usually sold under 
a sales finance contract. 

[16] Before the financial crisis, Chrysler had owned a finance 
company, Chrysler Financial. Chrysler Financial ceased operating and 
its business taken on by GMAC. 

[17] As a commercial company, GMAC was not originally eligible for 
TARP assistance through the Capital Purchase Program. However, in 
December 2008, Treasury established AIFP to provide assistance to the 
U.S. automotive industry to help avoid disruptions that would pose 
systemic risk to the nation's economy; Treasury subsequently provided 
assistance to GMAC through AIFP. 

[18] A bank holding company is a company that owns, or has controlling 
interest in 25 percent or more of the ownership in one or more banks. 
12 U.S.C. § 1841(a) (2011). An industrial loan company is an FDIC-
supervised, state-chartered financial institution whose distinct 
features include the fact that it can be owned by a commercial firm 
that is not regulated by a federal banking agency. 

[19] Mandatory convertible preferred stock is a type of preferred 
share that must be converted to common stock on or before a certain 
contractual date. Also, in May 2009, Treasury exercised its option to 
exchange its $884 million loan with Old GM for a 35.4 percent common 
ownership share in GMAC 

[20] A trust preferred security is a security that has both equity and 
debt characteristics, created by establishing a trust and issuing debt 
to it. Their use in meeting certain capital requirements was 
restricted by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Pub. L. No. 111-203, § 171, 124 Stat. 1376, 1433-35 
(2010). 

[21] Ally Financial is a privately held institution. These 
institutions did not issue warrants to purchase shares of common stock 
for TARP investments. Instead, Treasury received from privately held 
institutions warrants to purchase a specified number of shares of 
preferred stock (warrant preferred stock) that paid annual dividends 
at 9 percent. Unlike the warrants issued by publicly held 
institutions, such as Bank of America Corporation or Citigroup, Inc., 
Treasury exercised these warrants immediately. 

[22] 12 U.S.C. § 1844(b)-(c). 

[23] Data are from GM's Form 10-Ks, in the year, they were reported. 
Subsequent adjustments may have been made in later corporate filings. 

[24] [hyperlink, http://www.gao.gov/products/GAO-11-471]. 

[25] Subsequent to its 2012 annual goodwill impairment testing, GM 
reversed $36.2 billion of its deferred tax asset valuation allowances 
for its GM North America reporting unit. The reversal of the deferred 
tax asset valuation allowances resulted in the carrying amount of GM's 
GM North America reporting unit exceeding its fair value. As a result, 
GM performed an event-driven goodwill impairment test in the 3 months 
ended December 31, 2012. Based on the results of this test, GM 
recorded a goodwill impairment charge of $26.4 billion in the 3 months 
ended December 31, 2012. The remaining goodwill impairment charges 
were from GM's European and international operations operating units. 
According to the Federal Accounting Standards Board (FASB), an 
impairment exists when the carrying amount of goodwill exceeds its 
implied fair value. If the carrying amount exceeds the implied fair 
value, the difference is recognized as an impairment loss. However, 
the recognized loss cannot be more than the carrying amount. (ASC 350-
20-35-2 and 350-20-35-11) 

[26] Securities Exchange Act of 1934, Pub. L. No. 73-291, § 3(a)(60), 
48 Stat. 881 (codified at 15 U.S.C. § 78c(a)(60)). 

[27] Each of the three credit rating agencies uses its own methodology 
to evaluate qualitative and quantitative information about a company 
to develop its rating. These ratings are considered opinions of the 
credit rating agencies. 

[28] GM's worldwide market share from 2008 to 2012 remained largely 
flat. In 2008 GM reported worldwide market share of 12.4 percent, 
compared with 11.5 percent in 2012. 

[29] [hyperlink, http://www.gao.gov/products/GAO-11-471]. 

[30] Plan liabilities and assets reflect measurements in accordance 
with Financial Accounting Standards. Both plan liabilities and assets 
could also grow or diminish overtime, depending on such factors as 
investment returns, interest rates, changes in plan demographics, and 
whether benefits are revised in future years. 

[31] We have previously reported on GM's pension plan and steps it has 
taken to reduce the size of its pension obligations. See GAO, Troubled 
Asset Relief Program: Automaker Pension Funding and Multiple Federal 
Roles Pose Challenges for the Future, [hyperlink, 
http://www.gao.gov/products/GAO-10-492],(Washington, D.C.: April 6, 
2010). 

[32] Minimum funding requirements are set forth in the Employee 
Retirement Income Security Act of 1974. Pub. L. No. 93-406, 88 Stat. 
829 (codified as amended at 29 U.S.C. §§ 1001-1461). For more 
information, see [hyperlink, http://www.gao.gov/products/GAO-10-492]. 

[33] Tier 1 capital is currently considered the most stable and 
readily available capital that a banking institution can have to 
support its operations by absorbing unexpected financial losses. It 
consists of core capital elements, such as common stockholders' equity 
and noncumulative perpetual preferred stock. As defined in the Federal 
Reserve's Risk-Based Capital Adequacy Guidelines, tier 1 capital is 
composed of common and non-common equity elements, some of which are 
subject to limits on their inclusion in tier 1 capital. See 12 CFR § 
225, Appendix A, § II.A.1. These elements include common stockholders' 
equity, qualifying perpetual preferred stock, certain minority 
interests, and trust preferred securities. Certain intangible assets, 
including goodwill and deferred tax assets, are deducted from tier 1 
capital or are included subject to limits. See 12 CFR § 225, Appendix 
A, § II.B. Tier 1 common capital is tier 1 capital less the non-common 
elements of tier 1 capital, including perpetual preferred stock and 
related surplus, minority interest in subsidiaries, trust preferred 
securities, and mandatory convertible preferred securities. 12 CFR 
§225.8(c)(8). Common equity is considered the most loss-absorbing form 
of capital. In July 2013, the federal banking regulators issued 
revised requirements for minimum capital, regulatory capital, and 
additional capital "buffers" to enhance the resiliency of banking 
organizations during periods of financial stress. These new standards 
will be implemented over multiple years. Regulatory Capital Rules: 
Regulatory Capital, Implementation of Basel III, Capital Adequacy, 
Transition Provisions, Prompt Corrective Action, Standardized Approach 
for Risk-Weighted Assets, Market Discipline and Disclosure 
Requirements, Advanced Approaches Risk-Based Capital Rule, and Market 
Risk Capital Rule, 78 Fed. Reg. 62019 (Oct. 11, 2013); 78 Fed. Reg. 
55340 (Sept. 10, 2013). 

[34] Capital Plans, 76 Fed. Reg. 74631, 74632 (Dec. 1, 2011); see also 
Capital Adequacy Guidelines for Bank Holding Companies, 12 CFR § 225, 
Appendix A, § I. 

[35] 12 C.F.R. 225, Appendix G, § 3(a)(1)(ii). Federal Reserve Capital 
Adequacy Guidelines require bank holding companies to have a minimum 
tier 1 risk-based capital ratio of 6 percent to be considered well 
capitalized. 12 C.F.R. § 225.2(r)(ii). 

[36] As previously mentioned, GMAC (now Ally Financial) became a bank 
holding company in December 2008. We examined financial data from 2009 
to 2013 because Ally Financial became subject to new regulatory and 
reporting requirements when it became a bank holding company. 

[37] FDIC created the Temporary Liquidity Guarantee Program in October 
2008 to encourage liquidity in the banking system by guaranteeing 
newly issued senior unsecured debt of banks, thrifts, and certain 
holding companies and providing full coverage of non-interest-bearing 
deposit transaction accounts. In 2009, Ally Financial issued $7.4 
billion in debt under this program with maturity dates in October and 
December 2012. Ally Financial repaid $2.9 billion on October 30, 2012, 
and the remaining $4.5 billion on December 19, 2012. 

[38] Unsecured debts have no collateral. 

[39] See Voluntary Petition, In re Residential Capital, LLC, No. 1: 12-
12020 (Bankr. S.D.N.Y. May 14, 2012). 

[40] See Order Granting Debtors' Motion for an Order Under Bankruptcy 
Code Sections 105(A) and 363(B) Authorizing the Debtors to Enter Into 
a Plan Support Agreement with Ally Financial Inc., the Creditors' 
Committee, and Certain Consenting Claimants, In re Residential 
Capital, LLC, No. 1: 12-12020 (Bankr. S.D.N.Y. June 26, 2013); 
Debtors' Motion for an Order Under Bankruptcy Code Sections 105(A) and 
363(B) Authorizing the Debtors to Enter Into a Plan Support Agreement 
with Ally Financial Inc., the Creditors' Committee, and Certain 
Consenting Claimants at 7, In re Residential Capital, LLC, No. 1: 12-
12020 (Bankr. S.D.N.Y. May 23, 2013). The agreement does not include 
claims made by the Federal Housing Finance Agency and Federal Deposit 
Insurance Corporation. 

[41] See Order Granting Debtors' Motion for Entry of an Order Under 11 
U.S.C. §§ 105 and 363 Authorizing the Debtors To Satisfy Certain 
Secured Claims at 2, In re Residential Capital, LLC, No. 1: 12-12020 
(Bankr. S.D.N.Y. June 13, 2013). 

[42] See Joint Chapter 11 Plan Proposed by Residential Capital, LLC, 
et al., and the Official Committee of Unsecured Creditors, In re 
Residential Capital, LLC, No. 1: 12-12020 (Bankr. S.D.N.Y. July 3, 
2013). 

[43] In May 2010, GM repaid to Treasury the $6.7 billion TARP loan. 

[44] The amount of recoupment does not include dividends, interest, 
and other income Treasury has realized on its investments. 

[45] [hyperlink, http://www.gao.gov/products/GAO-11-471]. 

[46] Treasury contracted with financial institutions to develop and 
implement the dribble approach for selling the GM shares. 

[47] Treasury has also received about $3.4 billion in dividend 
payments from Ally Financial. 

[48] Pub. L. No. 111-203, §165(i)(1)(A), 124 Stat. 1376, 1430 (2010) 
(codified at 12 U.S.C. § 5365(i)(1)(A)). 

[49] 12 C.F.R. § 252.134(a)(2). 

[50] In 2013 18 bank holding companies were subject to the Dodd-Frank 
Act stress tests and CCAR. These were Ally Financial Inc., American 
Express Company, Bank of America Corporation, The Bank of New York 
Mellon Corporation, BB&T Corporation, Capital One Financial 
Corporation, Citigroup Inc., Fifth Third Bancorp, The Goldman Sachs 
Group, Inc., JPMorgan Chase and Co., KeyCorp, MorganStanley, The PNC 
Financial Services Group, Inc., Regions Financial Corporation, State 
Street Corporation, Sun Trust Banks, Inc., U.S. Bancorp, and Wells 
Fargo and Co. 

[51] In November 2011, the Federal Reserve issued a new regulation 
requiring large bank holding companies to submit an annual capital 
plan. Capital Plans, 76 Fed. Reg. 74631 (Dec. 1, 2011) (codified at 12 
C.F.R. § 225.8). The same 18 bank holding companies subject to the 
Dodd-Frank stress tests were subject to CCAR. 

[52] 12 C.F.R. § 225.8(d). 

[53] 12 C.F.R. § 225.8(e). 

[54] 12 C.F.R. § 225.8(e)(2)(ii). A capital distribution is defined as 
a redemption or repurchase of any debt or equity capital instrument, a 
payment of common or preferred stock dividends, a payment that may be 
temporarily or permanently suspended by the issuer on any instrument 
that is eligible for inclusion in the numerator of any minimum 
regulatory capital ratio, and any similar transaction that the Federal 
Reserve determines to be in substance a distribution of capital. 12 
C.F.R. § 225.8(c)(2) . 

[55] 12 C.F.R. § 225.8(d) (4), (e)(2)(iv). 

[56] The other bank holding company resubmitted a new capital plan 
under the Federal Reserve's regulation. After reviewing the plan, the 
Federal Reserve decided not to object to the resubmitted capital plan. 

[57] In its quantitative assessment, the Federal Reserve evaluated 
each bank holding company's ability to make all planned capital 
actions in its CCAR capital plan and maintain poststress capital 
ratios of greater than 5 percent of tier 1 common capital and all 
required regulatory minimum levels. The evaluations are based on the 
results of stress tests run by the bank holding companies and 
poststress capital ratios estimated by the Federal Reserve's CCAR. In 
the qualitative assessment, the Federal Reserve evaluates the analysis 
underlying the capital plan to determine whether it appropriately 
addresses potential risks based on the reasonableness of the 
assumptions and analysis underlying the capital plan, the robustness 
of the bank holding company's capital adequacy process, and corporate 
governance and controls in the capital planning process. 12 C.F.R. § 
225.8. 

[58] 12 C.F.R. § 225.8(e)(2)(i)(B). 

[59] Subvention occurs when a manufacturer offers financial incentives 
through a finance company conditioned upon the consumer financing the 
purchase of a vehicle or leasing a car through a finance company. 

[60] Consumer automobile loans are defined as the Federal Reserve 
defines them for bank holding company reporting purposes. See 
Instructions for Preparation of Consolidated Financial Statements for 
Bank Holding Companies, Reporting Form FR Y-9C, Schedule HC--
Consolidated Balance Sheet. Automobile loans are all consumer loans 
extended for the purpose of purchasing new and used passenger cars and 
other vehicles such as minivans, vans, sport-utility vehicles, pickup 
trucks, and similar light trucks for personal use. Id. at HC-C-13. 
These loans include both direct and indirect consumer automobile loans 
as well as retail installment sales papers purchased by the bank from 
automobile dealers. Id. 

[61] Pub. L. No. 110-343, § 116, 122 Stat. 3765, 3783 (codified at 12 
U.S.C. § 5226). 

[62] Accessed September 3, 2013. 

[63] Under EESA, every 30 days, Treasury must submit to Congress 
reports on actions taken and funds obligated and spent during the 
reporting period as well as detailed financial statements covering, 
among other items, agreements made, assets purchased, transactions 
that occurred, and the valuation or pricing method used for each 
transaction. §105(a), 122 Stat. at 3771-72. 

[64] See GAO, Financial Audit: Office of Financial Stability (Troubled 
Asset Relief Program) Fiscal Years 2012 and 2011 Financial Statements, 
[hyperlink, http://www.gao.gov/products/GAO-13-126R] (Washington, 
D.C.: Nov. 9. 2012); Financial Audit: Office of Financial (Troubled 
Asset Relief Program) Fiscal Years 2011 and 2010 Financial Statements, 
[hyperlink, http://www.gao.gov/products/GAO-12-169] (Washington, D.C.: 
Nov. 10, 2011); Financial Audit: Office of Financial Stability 
(Troubled Asset Relief Program) Fiscal Years 2010 and 2009 Financial 
Statements, [hyperlink, http://www.gao.gov/products/GAO-11-174] 
(Washington, D.C.: Nov. 15, 2010); and Financial Audit: Office of 
Financial Stability (Troubled Asset Relief Program) Fiscal Year 2009 
Financial Statements, [hyperlink, 
http://www.gao.gov/products/GAO-10-301] (Washington, D.C.: Dec. 9, 
2009). 

[65] Board of Governors of the Federal Reserve System, Dodd-Frank Act 
Stress Test 2013: Supervisory Stress Test Methodology and Results, 
March 2013, and Board of Governors of the Federal Reserve System, 
Comprehensive Capital Analysis and Review 2013: Assessment Framework 
and Results, March 2013. 

[End of section] 

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