Troubled Asset Relief Program: Continued Stewardship Needed as Treasury Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler and GM

In a November 2009 report on Treasury's Automotive Industry Financing Program (AIFP), GAO found that many of the individuals that Treasury initially hired, either as full-time staff or consultants, to help monitor and eventually sell Treasury's 9.9 percent equity in Chrysler and 61 percent equity in GM had left or were planning to leave the department. More specifically, two thirds of the original professional staff dedicated to overseeing the AIFP (known as the Treasury "auto team") had left Treasury, and Treasury did not contract with or employ outside firms with specialty expertise for its work with the auto industry. In addition, the leader of the auto team had been recently appointed Senior Counselor for Manufacturing Policy, requiring him to split his time between the auto team and his new role. As such, GAO recommended that Treasury ensure it had the expertise needed to adequately monitor and divest the government's investment in Chrysler and GM, and obtain needed expertise where gaps were identified. In response, Treasury hired two additional staff to work on the auto team and hired Lazard LLC in May 2010 to act as an advisor on the disposition of Treasury's investment in GM. As a result of these changes, Treasury will (1) have additional staff and assistance dedicated to overseeing its equity in Chrysler and GM and (2) be better equipped to develop a strategy for divesting its ownership interest in these companies and protecting the government's significant financial investment.

As part of a November 2009 report on the U.S. Treasury's (Treasury) Automotive Industry Financing Program (AIFP), GAO reported that, in an effort to oversee its $62 billion investment in GM and Chrysler, Treasury had established requirements in its credit agreements with the companies under which the companies had to report certain financial information to Treasury. In addition, Treasury reached agreement with the companies on additional financial, managerial, and operating information that they would provide in monthly reporting packages to Treasury. Treasury had planned to use this information to closely monitor the financial condition of GM and Chrysler. However, Treasury had not informed Congress which components of the reporting packages would be shared or how Treasury planned to use the information contained in these packages to monitor and assess the companies' performance. Therefore, we recommended that Treasury report to Congress on how it plans to assess and monitor the companies' performance to help ensure the companies are on track to repay their loans and to return to profitability. Treasury was apprehensive about publicly reporting this information, due to concerns about disclosing proprietary information in a competitive market. As an alternative, Treasury agreed to provide GAO, as a congressional oversight body, with information on how it was using this sensitive information to oversee the companies' performance. This alternative was consistent with GAO's recommendation that noted the need for transparency to be balanced with the need to protect certain proprietary business information. As a result, taxpayers have better accountability and assurances that their investment is being appropriately safeguarded.

As part of a November 2009 report on the U.S. Treasury's (Treasury) Automotive Industry Financing Program (AIFP), GAO reported that one of the key components for Treasury's strategy in exiting its $62 billion investment in GM and Chrysler is to determine how and when to sell the investment. Although Treasury officials said that they were considering all options for divesting the government's ownership interests, including an initial public offering or private sale, they had not identified criteria for determining the optimal time and method to sell. GAO concluded that determining when and how to divest the government's ownership stake will be one of the most important decisions Treasury will have to make regarding the federal assistance provided to GM and Chrysler, as this decision will affect the overall return on investment that taxpayers will realize from aiding these companies. Therefore, GAO recommended that Treasury develop criteria for evaluating the optimal method and timing for divesting the government's ownership stake in GM and Chrysler. In line with our recommendation, in June 2010, Treasury issued guidance on its participation in GM's initial public offering (IPO). This guidance explained that the timing of the IPO would be left to GM and would depend on market conditions and other factors and that Treasury would decide whether and at what level to participate in the offering. In September 2010, Treasury issued additional guidance on requiring GM and the IPO underwriters to, among other things, balance maximizing the price per share and the total proceeds to taxpayers while achieving a stable shareholder base, an active market for selling shares after the IPO, and broad interest in follow-on offerings to the extent practicable. Treasury officials noted that guidance was issued to give the market confidence that Treasury planned to follow an orderly process exiting the company, consistent with its guidance. As a result, Treasury's guidance facilitated its participation in GM's IPO in November 2010, which resulted in Treasury recouping $13.5 billion in net proceeds.