TARP:

Treasury's Exit from GM and Chrysler Highlights Competing Goals, and Results of Support to Auto Communities Are Unclear

GAO-11-471: Published: May 10, 2011. Publicly Released: May 10, 2011.

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Since December 2008, the Department of the Treasury (Treasury) has committed $62 billion in Troubled Asset Relief Program (TARP) funding to General Motors (GM) and Chrysler. Under GAO's mandate to oversee TARP, this report addresses (1) how restructuring with federal assistance has affected GM's and Chrysler's financial condition, (2) what Treasury has done to ensure that it disinvests in GM and Chrysler so as to protect taxpayers' interests and what risks remain in recouping its investments, and (3) how restructuring has affected auto communities and what the White House Council on Auto Communities and Workers (Council) and its staff in the Department of Labor's Office of Recovery for Auto Communities and Workers (Auto Recovery Office) have done to mitigate these effects. GAO reviewed documents on the companies' financial performance and federal assistance to auto communities and interviewed company, Treasury, and community officials..

Substantial federal assistance allowed GM and Chrysler to restructure their costs and improve their financial condition. Through federally-funded restructuring, GM and Chrysler reported lowering production costs and capacities by closing or idling factories, laying off employees, and reducing their debt and number of vehicle brands and models. These changes enabled both companies to report operating profits and reduce costs enough to be profitable at much lower sales levels than ever before. Nevertheless, to remain profitable, both companies must manage challenges affecting both their costs, including debt levels, and vehicle demand, such as launching products that are attractive to consumers amid rising fuel prices. Treasury has recouped roughly 40 percent of its investments in GM and Chrysler, but the extent to which it will further recoup its investments depends on how it balances two potentially competing goals for divestment--to maximize taxpayers' return and to exit the companies as soon as practicable. By participating in GM's November 2010 initial public offering (IPO), Treasury tried to fulfill both goals, selling almost half of its shares at an early opportunity. In preparation for the IPO, Treasury took steps to protect taxpayers' interest, such as hiring an adviser to provide analysis and support, as GAO previously recommended. Treasury received $13.5 billion through the IPO; yet, for Treasury to fully recoup its investment, GM's share price will have to increase from the $33 Treasury received in the IPO to an average of over $54--a higher price than industry analysts estimate over roughly a 6 to 18 month period. Chrysler's value would have to grow above historic levels for Treasury to recoup its investment. In divesting from the companies, Treasury may find its interest in exiting as soon as practicable at odds with the potential to increase taxpayers' return by waiting for the remaining shares to rise in value. While federally-funded restructuring allowed GM and Chrysler to remain in business, and therefore benefited communities where auto work continued, communities where plants were idled or closed experienced economic challenges beyond those they already faced. The Council and the Auto Recovery Office, which were established to help auto communities navigate federal programs, have brought federal attention to auto communities. However, communities that GAO visited had mixed views on the results of these efforts. Furthermore, the Council has not completed two of the four functions set forth in the executive order establishing it, and neither the Council nor its staff have demonstrated the results of their efforts. Although the Council is set to expire in June 2011 unless renewed by the President, fiscal year 2012 funding has been requested for the Auto Recovery Office to continue its efforts. GAO recommends that the Secretary of Labor report to Congress how the Auto Recovery Office has helped auto communities and its future plans, and that Congress consider not funding the office unless this information is provided. The Department of Labor agreed with parts of the recommendation, provided additional information on the office's activities, and stated that it would identify the office's future plans in the next 60 days.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Under the Troubled Asset Relief Program (TARP), the Department of the Treasury provided funding to General Motors and Chrysler to restructure their costs and improve their financial condition. This included lowering production costs and capacities by closing or idling factories, laying off employees, and reducing their debt and number of vehicle brands and models. In 2011, we reported that while federally-funded restructuring allowed GM and Chrysler to remain in business, and therefore benefited communities where auto work continued, communities where plants were idled or closed experienced economic challenges beyond those they already faced. The White House Council on Auto Communities and Workers (Council) and the Auto Recovery Office, which were established to help auto communities receive federal support through existing federal programs, have brought federal attention to auto communities. However, communities that GAO visited had mixed views on the results of these efforts. Furthermore, although the Council's May 2010 annual report cited various federal programs that have helped auto communities, neither the Council nor the office systematically tracked, measured, or assessed the Council's assistance to the communities. Without this information, Congress could not identify what the office had done or accomplished with the funding provided to date. Such information was especially important if the Council was not extended beyond its June 2011 expiration date. Therefore, we recommended that Congress consider not funding the office unless the Secretary of Labor provides Congress with information about the results of the federal government assistance to auto communities to date and a plan for carrying out the federal government's efforts in the future. Nevertheless, because the office did not receive a direct line item appropriation the Department received funding for its management expenses from which it allocated funds to the office in fiscal years 2011, 2012, 2013, and 2014. The office spent approximately $1.2 million in fiscal year 2011. In 2015, we confirmed that the Department closed the office in April 2014. The office's closure saved approximately $600,000 and addressed the intent of our recommendation which was to redirect funds from the office to other departmental programs. As a result, the federal assistance to distressed auto communities can be maximized because unnecessary duplication has been eliminated, tax dollars have been saved and existing federal programs can provide more efficient and effective assistance to these communities.

    Matter: Congress may wish to consider not funding the Office of Recovery for Auto Communities and Workers, as requested for in the Department of Labor's fiscal year 2012 budget request, unless the Secretary of Labor provides Congress with information about the results of the federal government's assistance to auto communities to date and a plan for carrying out the federal government's efforts in the future.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: Under the Troubled Asset Relief Program (TARP), the Department of the Treasury provided funding to General Motors and Chrysler to restructure their costs and improve their financial condition. This included lowering production costs and capacities by closing or idling factories, laying off employees, and reducing their debt and number of vehicle brands and models. In 2011, we reported that while federally-funded restructuring allowed GM and Chrysler to remain in business, and therefore benefited communities where auto work continued, communities where plants were idled or closed experienced economic challenges beyond those they already faced. The White House Council on Auto Communities and Workers (Council) and the Auto Recovery Office, which were established to help auto communities receive federal support through existing federal programs, have brought federal attention to auto communities. However, communities that GAO visited had mixed views on the results of these efforts. Furthermore, although the Council's May 2010 annual report cited various federal programs that have helped auto communities, neither the Council nor the office systematically tracked, measured, or assessed the Council's assistance to the communities. Consequently, it was difficult to identify the assistance the Council and office had provided. We previously reported that federal agencies engaged in collaborative efforts--like the multi-agency response to auto community issues coordinated by the Council--need to create the means to monitor and evaluate their efforts so that they can identify areas for improvement. Without this information, the Council and office are also missing an opportunity to identify and share best practices, including the methods or types of assistance that are most effective in helping auto communities. Therefore, we recommended that the Secretary of Labor direct the Auto Recovery Office to (1) document the office's achievements to date, including its support to the Council and assistance provided to various auto communities; (2) identify its function and strategy going forward; (3) establish a process for measuring the office's results; and (4) determine when and how the specialized assistance provided by the office can be transitioned to existing federal programs. In 2015, we confirmed that the Department closed the office in April 2014, which transferred its assistance to existing federal programs providing the assistance to auto communities. As a result, policymakers had the information needed to make funding decisions regarding the office and its closure eliminated duplication of efforts between the office and existing federal programs.

    Recommendation: Given the absence of demonstrated results and the 2012 budget request for the Auto Recovery Office, the Secretary of Labor, as co-chair of the Council, should direct the Auto Recovery Office to (1) document the office's achievements to date, including its support to the Council and assistance provided to various auto communities; (2) identify its functions and strategy going forward; (3) establish a process for measuring the office's results; and (4) determine when and how the specializedassistance provided by the office can be transitioned to existing federal programs. This information should be communicated to Congress as soon as possible so that it can be considered in the fiscal year 2012 appropriations process.

    Agency Affected: Department of Labor

 

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