The Role of TARP Assistance in the
Restructuring of General Motors
Bill Canis
Specialist in Industrial Organization and Business
Baird Webel
Specialist in Financial Economics
September 7, 2012
Congressional Research Service
7-5700
www.crs.gov
R41978
CRS Report for Congress
Pr
epared for Members and Committees of Congress
The Role of TARP Assistance in the Restructuring of General Motors
Summary
General Motors Corporation (Old GM) was a publicly traded company from 1916 until its
bankruptcy in 2009. As part of restructuring, Old GM and its successor General Motors Company
(New GM) together received over $50 billion in federal assistance through the U.S. government’s
Troubled Asset Relief Program (TARP). In exchange for this financial support, the U.S. Treasury
received 60.8% of the new company, with the rest of New GM held by the United Auto Workers
(UAW) retiree health care trust fund, the governments of Canada and Ontario, and holders of Old
GM’s bonds. In its restructuring, GM closed plants, cut its hourly and salaried workforce, shed
three brands, reduced debt, introduced popular new vehicles, and implemented changes in retiree
legacy costs that had been a major financial drain.
In November 2010, New GM conducted an initial public offering (IPO) of stock to investors,
once again becoming a publicly traded company, although the post-bankruptcy owners, including
the U.S. government, continue to hold significant stakes in the company. In the IPO, 550 million
common shares were sold by GM shareholders at a market price of $33 a share, raising over $18
billion. The U.S. Treasury sold over 412 million shares in the IPO and received approximately
$13.5 billion from its sale of shares. In addition, it continues to own 32% of New GM’s common
stock. The only capital New GM itself raised through the IPO was $4.9 billion from the
simultaneous sale of preferred stock.
GM is not the only company that received TARP funds as a result of the 2008-2009 financial
crisis. More than 700 institutions received support, with the U.S. government taking ownership
stakes in five large companies: GM, Chrysler, GMAC (now called Ally Financial), AIG, and
Citigroup. In general, ownership of private companies was not a goal of TARP and the U.S.
government has sought to reduce its ownership stakes when possible while maximizing the
taxpayers’ return from the assistance.
The strength of New GM’s stock price, and the related recoupment of government assistance to
the company, have hinged on two major factors: the success of GM’s restructuring and the
performance of the global economy, including retail auto sales. New GM’s finances have
improved markedly since emerging from bankruptcy, and the company has achieved 10
consecutive quarters of profitability. The global economy’s prospects, however, have become
clouded, especially in Europe. The prospects of slow growth there and in China (GM has large
operations in both regions) have prompted many investors to avoid some major automakers,
including New GM, Ford, and Daimler (parent of Mercedes-Benz). The shares of these three
automakers have all dropped by a third or more since the summer of 2011, while the Dow Jones
Industrial Average has risen by over 25% during the same period.
With the IPO sale of some of its New GM shares in November 2010, the U.S. government
realized a $4.4 billion loss on these shares. Future sale of the remaining U.S. stake in GM could
result in gains that would offset this loss. In order for the U.S. government to fully recoup the
nominal value of its $50.2 billion assistance, however, the government’s shares would need to sell
for over $52 per share, compared to the recent trading range of under $25 per share. It is unclear
when the U.S. Treasury will sell additional shares in GM, given recent volatility in the stock
market and the unsettled economic outlook.
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The Role of TARP Assistance in the Restructuring of General Motors
Contents
Introduction...................................................................................................................................... 1
General Motors’ Capital Crisis in 2008-2009.................................................................................. 2
U.S. Government Assistance to the Motor Vehicle Industry ........................................................... 5
U.S. Government Assistance for GM Through Bankruptcy ............................................................ 6
Post-Bankruptcy General Motors .................................................................................................... 7
Elements of U.S. Government Ownership..................................................................................... 10
Recouping U.S. Government Aid to GM....................................................................................... 11
Conclusion ..................................................................................................................................... 13
Figures
Figure 1. GM Ownership Structure ............................................................................................... 12
Tables
Table 1. Top Sellers of Light Vehicles in the United States............................................................. 4
Table 2. Summary of TARP Assistance for U.S. Motor Vehicle Industry ....................................... 6
Table 3. General Motors Company Results ..................................................................................... 8
Table 4. General Motors Co. Worldwide Employment.................................................................... 8
Table 5. Companies with Large Government Ownership Stakes................................................... 11
Appendixes
Appendix. U.S. Government Financial Support for GM Through the Troubled Asset
Relief Program............................................................................................................................ 14
Contacts
Author Contact Information........................................................................................................... 15
Congressional Research Service
The Role of TARP Assistance in the Restructuring of General Motors
Introduction
In 2008 and 2009, collapsing world credit markets and a slowing global economy combined to
create the worst market in decades for production and sale of motor vehicles in the United States
and other industrial countries. U.S. light vehicle production fell by more than 34% in 2009 from
2008 levels, but the year-over-year fall-off was more acute for General Motors Corporation (Old
GM), whose U.S. production dropped by 48%, and for Chrysler LLC (Old Chrysler), whose U.S.
production fell by 57%.2 A similar pattern was
reflected in U.S. light vehicle sales, as they
Corporate Terminology in This Report
fell from just over 16.5 million units in 2007
As a result of bankruptcy proceedings, there are two
to only 10.4 million units in 2009.3
companies commonly referred to as “GM.” Both are
discussed in this report. General Motors Corporation
The production and sales slides were serious
filed for bankruptcy in June 2009. In this report, that
business challenges for all automakers, and
company is referred to as “Old GM.” In July 2009, the
majority of Old GM’s assets and some of its liabilities
rippled through the large and interconnected
were purchased by a new entity that was subsequently
motor vehicle industry supply chain, touching
renamed “General Motors Company.” In this report, it is
suppliers, auto dealers, and the communities
referred to as “New GM.” The term “GM” is used when
where auto-making is a major industry. Old
both companies are referenced.
GM and Old Chrysler were in especially
Similarly, there are two companies commonly referred
precarious positions.4 The immediate crisis
to as “Chrysler.” Both are discussed in this report.
that brought these two companies to
Chrysler LLC filed for bankruptcy in April 2009. In this
bankruptcy was a loss of financial liquidity as
report, that company is referred to as “Old Chrysler.” In
June 2009, the majority of Old Chrysler’s assets and
the banking system’s credit sources froze and
some of its liabilities were purchased by a new legal
neither company had enough internal reserves
entity that was subsequently renamed “Chrysler Group.”
to weather the economic storm. As a result,
In this report, it is referred to as “New Chrysler.” The
they turned to the U.S. government for
term “Chrysler” is used when both companies are
referenced.
assistance in November 2008.
GMAC, Inc., changed its general corporate identity to
In December 2008 and the early months of
Al y Financial in May 2010, approximately a year after
introducing the name Ally Bank for its banking subsidiary.
2009, both automakers and two auto-financing
Except for historical background and forward-looking
companies5 received federal financial
statements, this report will refer to the corporation as
assistance from the Bush and Obama
GMAC/Ally Financial.1
Administrations. As discussed later in this
report, that funding enabled Old GM and Old Chrysler to begin restructuring their operations, a
process that was ultimately continued in bankruptcy court.
1 For a discussion of U.S. government assistance to GMAC/Ally Financial, see CRS Report R41846, TARP Assistance
for the U.S. Motor Vehicle Industry: Unwinding the Government Stake in GMAC, by Baird Webel, Gary Shorter, and
Bill Canis.
2 Other automakers’ U.S. production fell as well: Toyota’s by 28%, Honda’s by 27%, and Ford’s by 13%. Source:
“North American Car and Truck Production,” Automotive News, January 11, 2010. GM and Chrysler sales in 2008
were made by Old GM and Old Chrysler; 2009 sales include sales made by both entities before they filed for
bankruptcy as well as sales made by new GM and new Chrysler after bankruptcy.
3 U.S auto sales for most of the decade 2000-2009 were above 16 million units per year. Ward’s, Ward’s Motor Vehicle
Facts & Figures 2009, “U.S. Retail Sales of Cars and Trucks.”
4 For a full analysis of the decline in U.S. and other industrial country auto manufacturing during the recent recession,
see CRS Report R41154, The U.S. Motor Vehicle Industry: A Review of Recent Domestic and International
Developments, by Bill Canis and Brent D. Yacobucci.
5 At the time, Chrysler Financial and GMAC were both owned by Cerberus Capital Management.
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Alone among the world’s major automakers, Old GM and Old Chrysler filed for bankruptcy in
the summer of 2009 and, with oversight from the Obama Administration as well as the
bankruptcy court, restructured their operations in an attempt to become more competitive
companies. New GM and New Chrysler are now governed by new boards of directors. New
GM’s board members were initially chosen by the U.S. Treasury Department. Both reorganized
companies had sizable ownership stakes held by the U.S. government and the United Auto
Workers (UAW) union, although these stakes have been reduced in recent months.6
As auto markets improved in 2010, so too did New GM’s balance sheet and its outlook. The
company paid off its remaining $6.7 billion federal loan and repurchased $2.1 billion in preferred
stock held by the U.S. government. This left the government holding over 900 million shares of
common equity received in return for assistance from the Troubled Asset Relief Program (TARP).
New GM’s stock was offered in the IPO in December 2011 for $33 per share and rose to a peak of
over $39 per share in early 2011.
Since the IPO, no further U.S. government shares have been sold, and the government still owns
approximately 500 million shares of New GM. The amount of the original GM loans that the U.S.
government will recoup will depend on the price it receives for these shares. It is not known when
the Treasury will seek to sell its shares. To break even, the Treasury would need to see its shares
in New GM sell for over $52 a share. Since April 2012, however, the stock has consistently
traded below $25 per share.7
This report analyzes the crisis leading to Old GM’s bankruptcy, the U.S. government’s assistance
to, and role in, the new company, the progress that General Motors Company has made since it
was created, and the recoupment of the U.S. government’s assistance for GM.
General Motors’ Capital Crisis in 2008-2009
General Motors Corporation was a publicly traded company from 1916 until it filed for
bankruptcy in June 2009.8 It faced a capital crisis in 2008 and 2009 because the normal avenues
for raising capital were unavailable: auto sales were plummeting; the company had limited
success in selling off assets; its efforts to cut costs were affected by the long timeline required to
determine the efficacy of such steps; and sources of capital in the open market were frozen by the
financial meltdown. As a consequence, the company’s executives tried to arrange U.S.
government bridge loans beginning in the fall of 2008.9 As Old GM’s then-Chief Executive
Officer (CEO) Fritz Henderson stated in the company’s bankruptcy court filing:
6 After the GM IPO, the U.S. government owned 33.3% of New GM (and 9.85% of New Chrysler). The Voluntary
Employee Beneficiary Association (the UAW’s retiree health care plan) owned 10.7% of New GM (and 67.7% of New
Chrysler). The Canadian and Ontario governments owned 9.3% of New GM (and the Canadian government owned
2.46% of New Chrysler).
7 New Chrysler repaid its $5.9 billion TARP loan in May 2011 and purchased the U.S. government’s equity stake a
month later for $500 million, ending its TARP connection with the U.S. government. See CRS Report R41940, TARP
Assistance for Chrysler: Restructuring and Repayment Issues, by Baird Webel and Bill Canis.
8 William J. Holstein, Why GM Matters: Inside the Race to Transform an American Icon (Walker & Company, 2009),
p. 4.
9 A bridge loan is a temporary, short-term loan made with the expectation that it will be repaid as soon as longer-term
financing can be arranged.
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By the fall of 2008, [Old GM] was in the midst of a severe liquidity crisis, and its ability to
continue operations grew more and more uncertain with each passing day. The Company
previously has recognized the need for bold action to modify and transform its operations
and balance sheet to create a leaner, more efficient, productive and profitable business; and
it had expended a tremendous amount of resources and effort, on operational, strategic
partnering, and financial fronts, to accomplish this task. Unfortunately, because of the
continuing and deepening recession, aggravated by the collapse of Lehman Brothers
Holdings on September 15, 2008, GM was not able to achieve its objective. As a result of
the economic crisis, the Company was compelled to seek financial assistance from the
federal government.10
When capital markets are functioning normally, companies might arrange for debt financing
through a major investment bank. In 2007, Alan Mulally, Ford Motor Company’s president and
CEO, arranged for Ford to borrow $23.5 billion to finance restructuring. Private capital was still
available at that time, allowing Ford to mortgage all of its assets to obtain a large loan. An article
in Fortune described the precarious position that led Ford to refinance its operations:
When Mulally arrived in September 2006, he took over a company on the verge of collapse.
Ford lost $12.6 billion that year and another $2.7 billion in 2007. Mulally put up every asset,
including the blue-oval trademark, as collateral to borrow $23.5 billion to keep the company
afloat. Then he set about his mission of creating a global Ford, both in terms of the vehicles
it produces and how it produces them.11
As Old GM’s bankruptcy filing indicated, these avenues for raising capital were not available in
2008 and 2009. By then, Old GM was facing extreme financial stress, for several reasons:
• Decline in the U.S. auto market. In 2008 and the first half of 2009, U.S. auto
sales were in a freefall, ultimately dropping further than at any time in three
decades. The 2009 combined sales of Old GM and GM fell by 30% (compared
with 2008 sales), a much steeper decline than any other automaker, except the
combined sales of Old Chrysler and Chrysler.12 The decline in sales further dried
up financial resources that Old GM could have utilized.
• Steady loss of U.S. market share. General Motors—which at its peak sold 51%
of all autos in the United States—saw its market share slide from over 28% in
2000 to under 20% in 2009 (see Table 1 below).
10 Affidavit of Frederick A. Henderson Pursuant to Local Bankruptcy Rule 1007-2, U.S. Bankruptcy Court, Southern
District of New York, filed June 1, 2009.
11 Alex Taylor III, “Can This Car Save Ford?,” Fortune, April 22, 2008.
12 Automotive News, “US Car and Light Truck Sales by Make—12 Months 2009,” January 5, 2010, and “US Car and
Light Truck Sales by Make—12 Months 2008,” January 12, 2009.
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Table 1. Top Sellers of Light Vehicles in the United States
Share of units sold
Company 2000
2009
General Motors
28.1%
19.9%
Toyota 9.3%
17.0%
Ford 23.1%
16.1%
Honda 6.6%
11.0%
Chrysler 11.7%
8.9%
Sources: “U.S. Light Vehicle Sales,” Market Data Book, Automotive News, 2002, and “U.S. Car and Light Truck
Sales by Make, 2009,” Automotive News.
Notes: Ford data do not include Volvo, Land Rover, and Jaguar; GM data do not include Saab. Sales in 2000 are
for Old GM and Old Chrysler. Sales in 2009 are the combined sales of Old GM/GM and Old Chrysler/Chrysler.
• Break-even point for car making was too high. The break-even point is the
volume of sales at which net sales (i.e., gross sales less discounts, returns, and
freight costs) equal costs. According to Old GM, sales in the U.S. market would
have needed to hit a rate of 11.5 million to 12 million vehicle units a year for it to
break even.13 U.S. sales in 2009 were 10.4 million units.
• Exceptional labor and retiree health care costs. The Detroit 3 automakers (Old
GM, Ford, and Old Chrysler) negotiated contracts with the UAW over the years
that expanded benefits for union workers to a level the companies could not
sustain when imported vehicles began to take large shares of the U.S. market. Old
GM estimated that its retiree health care and pension costs added $1,500 to the
cost of every U.S.-made vehicle and exceeded the cost of the steel used in the
vehicles.14 Old GM had obligations of nearly $30 billion to fully fund retiree
health care and pension funds.15
• Corporate culture. It was alleged at the time of bankruptcy that Old GM’s
corporate executives had been too bureaucratic and out of touch with U.S. car
buyers’ preferences. The Auto Task Force at the Treasury Department, which
oversaw restructuring of Old GM (and Old Chrysler), repeatedly said that
changing GM’s senior executive corps and the internal corporate culture would
be one of the most important steps in Old GM’s transformation to a more
competitive company. The Obama Administration’s firing of Old GM’s then-
chairman and CEO, Rick Wagoner, in 2009, and its appointment of new board
members and a new chairman and CEO, were intended, in part, to emphasize to
all stakeholders the importance of changing the business model.
• Higher gasoline prices. In 2008, gasoline prices rose to over $4 a gallon in many
parts of the United States, adversely affecting demand for large vehicles with low
13 Jeff Green and Caroline Salas, “GM Said to Speed Cutbacks to Lower Break-Even Point,” Bloomberg, April 22,
2009, at http://www.bloomberg.com/apps/news?sid=aOloQhPHrqX0&pid=newsarchive.
14 Julie Appleby and Sharon Silke Carty, “Ailing GM Looks to Scale Back Generous Health Benefits,” USA Today,
June 23, 2005.
15 Bill Visnic, “UAW Cornered on VEBA?,” Edmunds, February 27, 2009, at http://www.autoobserver.com/2009/02/
uaw-cornered-on-veba.html.
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fuel efficiency. These vehicles, such as pickup trucks and SUVs, had been critical
to Old GM’s profitability.16
U.S. Government Assistance to the
Motor Vehicle Industry
The initial U.S. government loans to assist the U.S. motor vehicle and motor vehicle financing
industries were made by the Bush Administration in December 2008 and January 2009. At that
time, $24.8 billion in assistance was provided to the four companies,17 the first of what would
eventually total nearly $80 billion in assistance through the Troubled Asset Relief Program.18
TARP was authorized by the Emergency Economic Stabilization Act (EESA),19 enacted in the fall
of 2008 to address the ongoing financial crisis. This statute specifically authorized the Secretary
of the Treasury to purchase troubled assets from “financial firms,” the definition of which did not
mention manufacturing companies.20 According to the U.S. Treasury Department,
The overriding objective of EESA was to restore liquidity and stability to the financial
system of the United States in a manner which maximizes overall returns to the taxpayers.
Consistent with the statutory requirement, Treasury’s four portfolio management guiding
principles for the TARP are: (i) protect taxpayer investments and maximize overall
investment returns within competing constraints; (ii) promote stability for and prevent
disruption of financial markets and the economy; (iii) bolster market confidence to increase
private capital investment; and (iv) dispose of investments as soon as practicable, in a timely
and orderly manner that minimizes financial market and economic impact.21
The authorities within TARP were very broad, and when Congress did not pass specific auto
industry loan legislation,22 the Bush Administration turned to TARP for funding, arguing that to
not provide any assistance to the auto industry would make the recession much worse.
After it took office, in 2009, the Obama Administration built on this precedent and both Chrysler
and GM received additional TARP loans. GMAC/Ally Financial received additional capital
infusions, enabling the company to survive the economic downturn in the auto market as well as
large losses on its mortgage operations. Chrysler Financial, in contrast, required no additional aid
and relatively quickly repaid the TARP loan it received. The assistance for the auto industry was
16 Affidavit of Frederick A. Henderson, part of General Motors filing in the U.S. Bankruptcy Court, Southern District
of New York, June 1, 2009, pp. 18-19.
17 The loan recipients and the initial loans they received from the Bush Administration in December 2008 and January
2009 were as follows: General Motors Corporation ($14.3 billion), Chrysler LLC ($4 billion), GMAC ($5.0 billion),
and Chrysler Financial ($1.5 billion).
18 According to the Treasury Department, $410 billion of the authorized $700 billion TARP fund has been disbursed, of
which 75% has been recovered. The Treasury Department maintains an ongoing tally of all TARP assistance and
recoupment, http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/Pages/Home.aspx.
19 P.L. 110-343, 122 Stat. 3765.
20 P.L. 110-343, Division A, Section 3.
21 TARP, “Monthly 105(a) Report to Congress,” U.S. Department of the Treasury, July 2010, p. 10.
22 In December 2008, the House of Representatives passed H.R. 7321, authorizing the use of certain Department of
Energy funds as bridge loans to GM and Chrysler. Passed 237-170, the bill was not acted upon in the Senate. For a
complete description of Congress’s consideration of auto industry loan legislation in the fall of 2008, see CRS Report
R40003, U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring, coordinated by Bill Canis.
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not without controversy, and questions were raised about the legal basis for the assistance and the
manner in which it was carried out.23
Table 2 summarizes the TARP assistance given to the U.S. motor vehicle manufacturing and
financing industries.24
Table 2. Summary of TARP Assistance for U.S. Motor Vehicle Industry
Principal
Principal
Current
Recouped
Losses
Income/Revenue
Government
Total
to Date by
Realized by
Received from
Outstanding
Ownership
TARP
the
the
TARP
TARP
Company
Share
Assistance
Treasury
Treasury
Assistance
Assistance
Chrysler 0%
$10.9
$7.9 billion
-$2.9 billion
$1.69 billion
$0
billion
Chrysler
Not
$1.5
$1.5 billion
$0
$0.02 billion
$0
Financial
Applicable
billion
GM 32%
$50.2
$23.2 billion
-$4.3 billion
$0.66 billion
$22.6 billion
(New GM)
billion
GMAC/Ally
73.8% $17.2 $2.5 billion
$0
$3.13 billion
$14.6 billion
Financial
billion
Source: U.S. Treasury, Daily TARP Update, September 5, 2012; Troubled Asset Relief Program: Monthly 105(a)
Report, various dates.
Note: Figures may not sum due to rounding.
U.S. Government Assistance for GM Through
Bankruptcy
In December 2008, Old GM received $13.4 billion from the U.S. Treasury, the first of several
loans made through TARP. Old GM received additional loans from TARP of $2 billion in April
and $4 billion in May 2009. These loans kept Old GM’s operations alive as it went through a
drastic restructuring overseen by the Obama Administration’s Auto Task Force.25 (A complete
listing of GM’s TARP loans and related payments to the government can be found in the
Appendix.)
23 See, for example, Congressional Oversight Panel (COP), September Oversight Report: The Use of TARP Funds in
Support and Reorganization of the Domestic Automotive Industry, September 9, 2009. This panel was created by the
Emergency Economic Stabilization Act of 2008. COP’s statutory authorization and website have expired, but its
reports can be found at http://cybercemetery.unt.edu/archive/cop/20110401222823/http:/cop.senate.gov/.
24 A more detailed accounting of the assistance for GM can be found in CRS Report R41401, General Motors’ Initial
Public Offering: Review of Issues and Implications for TARP, by Bill Canis, Baird Webel, and Gary Shorter.
25 The Auto Task Force was established by the Obama Administration in February 2009. It is chaired by Treasury
Secretary Geithner and composed of officials from a wide range of U.S. government agencies, including the
departments of Labor, Commerce, and Transportation. On a day-to-day basis, the task force was managed for most of
2009 by Steven Rattner, and in 2010 by Ron Bloom. Timothy Massad, Assistant Secretary for Financial Stability,
currently oversees the implementation and wind down of TARP.
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Old GM’s Viability Plan of February 2009, which was a U.S. Treasury requirement to obtain
additional loans after the initial loan of December 2008, laid out a plan of recovery based on
changes in operations, labor costs, and other factors. President Obama rejected that plan at the
end of March 2009, saying it was insufficient for a total recovery of the company. The
Administration gave Old GM two months, until June 1, to devise a more thorough restructuring
and thereby qualify for more U.S. government aid.26
Throughout the spring of 2009, Old GM worked with various stakeholders, including the UAW,
bondholders, creditors, dealers, and suppliers, to devise a new restructuring plan that would be
approved by the Auto Task Force and avert bankruptcy. While the company succeeded in
reaching tentative agreements with most stakeholders, a group of creditors would not agree to the
terms offered, thus prompting GM to file for bankruptcy on June 1, 2009.
During the bankruptcy proceedings, the government provided a final installment from TARP: a
$30 billion loan to facilitate the transformation to a new, smaller company, bringing total U.S.
government loans related to GM to more than $50 billion. While much of the $30 billion was
used by GM during the restructuring process, a majority of it was not used, and $16.4 billion
remained in an escrow account on September 30, 2009.27
GM also benefited financially during and after the bankruptcy process from previous policy
rulings by the Internal Revenue Service (IRS).28 Under normal circumstances, a corporation
undergoing bankruptcy is not able to carry forward previous tax losses since the bankruptcy
process is considered a change in the control of the company.29 Government holdings through
TARP, however, generally have not been treated by the IRS as causing such a change in control.
Because of this, New GM was able to carry forward $45 billion in losses and other costs incurred
by Old GM, allowing it to avoid paying taxes on future profits for up to 20 years. Included in this
figure are net operating losses of approximately $16 billion.30 These tax savings are not counted
as part of TARP support. In theory, these tax rulings should make the ownership stake held by the
U.S. Treasury more valuable when this stake is sold. To whatever degree these tax savings do
increase the value of New GM, this benefit would also accrue to the other owners of the
company.
Post-Bankruptcy General Motors
A new company was established in July 2009, after just 40 days in federal bankruptcy
proceedings. New GM began with smaller U.S. operations than its predecessor company and a
major presence overseas. GM operates as four divisions: GM North America (GMNA), GM
Europe (GME), GM South America (GMSA), and GM International Operations (GMIO). In
26 Old Chrysler’s Viability Plan was also rejected by the Obama Administration, and it was given 30 days to
restructure.
27 General Motors Company, Form 10-Q Quarterly Report, April 7, 2010, p. 37.
28 The IRS issued several notices on this issue, including Notice 2008-100, I.R.B. 2008-44, October 14, 2008; Notice
2009-14, I.R.B. 2009-7, January 30, 2009; Notice 2009-38, I.R.B. 2009-18, April 13, 2009; and Notice 2010-2, I.R.B.
2010-2, December 14, 2009.
29 The tax code generally does not permit such assumption of tax losses in order to discourage companies from making
acquisitions solely for the purpose of assuming tax losses.
30 “GM’s Tax Shelter,” Wall Street Journal, July 31, 2009.
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2012, over 47% of GM’s vehicle sales have been outside North America and Europe, primarily in
developing countries in Asia. In China alone in the second quarter of 2012, GM’s joint ventures
sold 672,000 vehicles, 28% of all its worldwide sales. In 2010, GM sales in China exceeded those
in the United States for the first time.31
Table 3 shows GM’s second-quarter sales and earnings worldwide over the past three years,
comparing second quarter results of each year. It is noteworthy that GM’s North American sales
are more lucrative, as the larger cars, pickup trucks, and SUVs sold in North America carry
higher profit margins than the smaller vehicles sold elsewhere in the world. Of the $2.1 billion
earned in the second quarter of 2012, $2.0 billion was earned in North America. The other
divisions lost money, broke even, or saw only a small profit.
Table 3. General Motors Company Results
Comparing 2Q 2010, 2011 and 2012
Earnings before
Net Revenue
Vehicles Sold
Interest and Taxes
Total
2Q 2010
$33.2 billion
2.2 million
$2.0 billion
2Q 2011
$39.4 billion
2.3 million
$3.0 billion
2Q 2012
$37.6 billion
2.4 million
$2.1 billion
Source: GM Earnings Chart Set, August 4, 2011, and August 2, 2012.
Notes: Revenues are before intercompany transfers and corporate and other eliminations. GM’s second quarter
is April-June.
According to GM’s 2011 Annual Report, it has “announced investments in 29 U.S. facilities,
totaling more than $7.1 billion since July 2009, with more than 17,500 jobs created or retained.”32
The same report provides its worldwide employment as shown in Table 4.
Table 4. General Motors Co. Worldwide Employment
Yearend, in thousands
GM Unit
2010
2011
GMNA 96
98
GME 40
39
GMIO 32
34
GMSA 31
33
GM Financial
3
3
Total Worldwide
202
207
Source: “Highlights,” Vision in Motion, General Motors Company 2011
Annual Report, p. 4.
31 “GM’s China Sales Pass U.S. for First Time in History,” The Economic Times, January 24, 2011.
32 Daniel F. Akerson, Chairman and CEO, “Letter to Stockholders,” in Vision in Motion, General Motors Company
2011 Annual Report, p. 2.
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The Role of TARP Assistance in the Restructuring of General Motors
The New GM of 2009 differed in a number of ways from the Old GM:33
• Employment was cut. Old GM had 91,000 U.S. employees in 2008; new GM had
75,000 immediately after bankruptcy. Its worldwide employment fell from
243,500 to 209,000 during the same time period.
• Plants were closed. Old GM announced that, of the 47 U.S. plants it operated in
2008, 13 would close by 2010. The closed plants and machinery remained with
Old GM.
• Brands were shed. The Pontiac, Saturn, and Hummer brands were terminated,
and Saab was sold to a Dutch company. Among its remaining brands, GM’s U.S.
market share fell from 22% in 2008 to 19.8% in 2009 and further declined to
19.1% in 2010. But in the first six months of 2011, GM’s market share rose to
19.9%.34 In addition, its sales in China rose by nearly 30% in 2010, exceeding
U.S. sales for the first time.
• Health care costs for retired U.S. union workers were transferred to the UAW.
Old GM reached agreement with the UAW in 2007 to transfer the financial
responsibility for U.S. hourly workers’ retiree health care to the union’s VEBA
(Voluntary Employee Beneficiary Association), thus removing $30 billion in
obligations. The UAW signed similar agreements with Ford and Old Chrysler.
The Detroit 3 agreed to fund the VEBAs with cash or stock. The union made
additional concessions concerning retiree health care in 2009 negotiations. The
GM restructuring agreement gave the VEBA a significant ownership stake in GM
because the company did not have the financial resources to provide cash.
• Many expensive liabilities were jettisoned. Left with Old GM were
environmental liabilities estimated at $350 million for polluted properties,
including Superfund sites; certain tort liability claims, including those for some
product defects and asbestos; and contracts with suppliers with whom New GM
would not be doing business.
The U.S. government was the majority owner of the company that emerged from the bankruptcy
process, as the majority of the TARP loans made to GM were converted into an initial 60.8%
government ownership stake in New GM. In addition, $6.7 billion of the TARP loans remained
outstanding after the bankruptcy and the U.S. government received $2.1 billion in preferred
stock.35 Following positive financial results in the quarters after emerging from bankruptcy, New
GM used cash in the escrow account that held its TARP borrowings to pay off the $6.7 billion in
outstanding loans by April 2010.36 The $2.1 billion in preferred stock was repurchased by New
GM in December 2010, following the company’s IPO.37
33 Old GM—General Motors Corporation—remains in bankruptcy and is officially the Motors Liquidation Company,
with the assets and liabilities that were not attached to the new General Motors Company.
34 In the first six months of 2011, New GM’s light vehicle sales accounted for 19.9% of the market, compared to 16.9%
for Ford, 12.8% for Toyota, 10.1 for New Chrysler and 9.6% for Honda. The current market shares of these five
automakers can be compared with the shares in 2009, as shown in Table 1. Sourced from the Automotive News
database.
35 Preferred stock is an equity instrument, but it does not confer any control over the company and typically has a set
dividend rate to be paid by the company; it is similar economically to debt, except that in most cases the issuer may
waive dividend payments on preferred stock under certain circumstances.
36 According to the Special Inspector General for TARP, “all of these payments were made, with Treasury’s
(continued...)
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The Role of TARP Assistance in the Restructuring of General Motors
Elements of U.S. Government Ownership
In addition to its ownership of GM, the U.S. government acquired large common ownership
stakes in Chrysler, GMAC/Ally Financial, Citigroup, and AIG through TARP funds and other
assistance during the financial crisis. It has sold its stakes in Citigroup and Chrysler, but retains
large common shareholdings in the other companies. Table 5 details the government ownership
stakes in these companies.
Exercising managerial control was not a stated goal of the shareholdings in these companies.
Instead, the stated purpose was to compensate taxpayers for the assistance given the companies
while not saddling the companies with large liabilities that could hinder recovery. The Obama
Administration laid out four core principles to guide the management of the government’s
ownership stakes:
• The government has no desire to own equity any longer than necessary, and will
seek to dispose of its ownership interests as soon as practicable.
• In exceptional cases where the government feels it is necessary to respond to a
company’s request for substantial assistance, the government will reserve the
right to set up-front conditions to protect taxpayers, promote financial stability,
and encourage growth.
• After any up-front conditions are in place, the government will manage its
ownership stake in a hands-off, commercial manner.
• As a common shareholder, the government will only vote on core governance
issues, including the selection of a company’s board of directors and major
corporate events or transactions.38
Disposing of large ownership stakes in companies can be done in a variety of manners, including
large-scale public offerings of shares, negotiated sales of large blocks of shares to other entities,
and gradual share sales in the stock market. All of these sales methods have been used by the
government in disposing of holdings of the companies discussed here. Following its emergence
from bankruptcy, New GM was not publicly traded, thereby precluding a gradual sale of stock
into the stock market, as was done in the case of the U.S. government’s holdings in Citigroup.
The size of the company and of the government’s stake in New GM made a negotiated private
sale to another entity unlikely, and any private sale would have been subject to questions about
whether the government received a fair price. Thus, the U.S. government chose to participate in
an initial public offering in which it and other shareholders could sell significant amounts of their
GM stock.
(...continued)
permission, using funds from the escrow account that held TARP funds provided to GM.” “Quarterly Report to
Congress,” Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), July 21, 2010,
p. 108.
37 U.S. Treasury, “General Motors to Repurchase Treasury Preferred Stock,” press release, October 28, 2010,
http://financialstability.gov/latest/pr_10282010.html.
38 U.S. Treasury, “FACT SHEET: Obama Administration Auto Restructuring Initiative,” press release, June 1, 2009,
http://www.financialstability.gov/latest/05312009_gm-factsheet.html.
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The Role of TARP Assistance in the Restructuring of General Motors
Table 5. Companies with Large Government Ownership Stakes
Current Government
Maximum Government
Method of Sale of
Company
Ownership Share
Ownership Share
Ownership Stake
GM
32.0%
60.8%
Initial Public Offering
Chrysler 0% 9.9%
Negotiated
Sale
GMAC/Al y Financial
73.8%
73.8%
Not Determined
AIG
53%
92%
Secondary Public Offering
Citigroup
0%
34%
Gradual Sale of Stock
Source: U.S. Treasury, Troubled Asset Relief Program: Monthly 105(a) Report, various dates.
Note: Some of the government ownership in AIG resulted from a Federal Reserve loan, not from TARP
assistance.
Recouping U.S. Government Aid to GM
As detailed in the Appendix, the U.S. government through TARP has aided the combined Old
GM and New GM with more than $50 billion in loans since December 2008. Of this amount, $7.4
billion was repaid in installments.39 An additional $2.1 billion was converted into shares of
preferred stock held by the U.S. Treasury and redeemed in December 2010. The approximately
$40.7 billion remaining was effectively converted into an initial 60.8% equity stake.40 The TARP
authorization to purchase new assets or make new commitments expired on October 3, 2010, but
the U.S. Treasury has continuing authority to manage the government’s equity in GM and its
other TARP assets. Proceeds from TARP repayments are specified by the TARP statute to “be
paid into the general fund of the Treasury for reduction of the public debt.”41
The November 2010 IPO returned $13.5 billion to the government. Income received by the
Treasury from dividends, interest, and other gains totals approximately $0.85 billion, leaving
approximately $26.2 billion to be recovered. The government now holds approximately 500
million shares, or 32% of GM’s common equity. Figure 1 shows the ownership structure of GM
in 2009 when the new company emerged from bankruptcy and its structure in fall 2012. In order
for the government’s 32% of the company to be worth $26.2 billion, GM’s market capitalization
would have to be approximately $81.9 billion. To achieve this market capitalization, the price of
GM stock would have to exceed $52 per share, a significant increase from the current share
prices. The last time the stock market value of GM exceeded $81.9 billion (when adjusted for
inflation) was in 2000.42
39 Seven installments were paid between November 2009 and July 2010.
40 Approximately $1 billion of the debt remains legally owed by Old GM; however, little of this has been recovered.
41 P.L. 110-343, §106(d).
42 GM market capitalization from the annual Fortune magazine ranking of the top 500 firms and Yahoo Financial.
Inflation adjustment by CRS using the Bureau of Labor Statistics’ consumer price index calculator.
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The Role of TARP Assistance in the Restructuring of General Motors
Figure 1. GM Ownership Structure
2009 vs. 2012
Source: General Motors Company.
Note: The 2009 ownership structure is how the new company emerged from bankruptcy.
Whether or not the government is able to sell the remaining common shares at a sufficient price
to recoup the $50.2 billion of assistance provided to GM is not the sole measure of whether the
government shows a gain or loss on the assistance. In assessing the extent to which the
government has recovered its investment, economists might also include a number of other
factors, such as the cost to the government to borrow the funds that it then provided to GM, a
premium to compensate the government for the riskiness of the loans, and the cost to the
government of managing the assistance given.
The budgetary scores produced by the Congressional Budget Office (CBO) and the Office of
Management of Budget (OMB) take many of these additional factors into account. The TARP
statute required that TARP assistance be scored on the government budget in a similar manner to
loans and loan guarantees under the Federal Credit Reform Act.43 Specifically, the expected
present value of actions under TARP is to be estimated using market, risk-adjusted rates and
reflected on the federal budget at that time. The estimates produced according to these formulas,
however, have only been reported in aggregate figures. For example, CBO estimated in March
2012 that the budget cost of the TARP assistance for the entire auto industry would be $19
billion,44 and the Treasury in coordination with OMB estimated lifetime cost as of May 31, 2012,
to be $25.05 billion.45 Neither of these, however, reports separately the individual gains or losses
on Chrysler, GM, and GMAC/Ally Financial. Estimates of the potential gain to the federal
government generally rise when the share price of the publicly traded GM shares rise and shrink
when the shares fall in value.
43 2 U.S.C. 661-661f.
44 Congressional Budget Office, Report on the Troubled Asset Relief Program—March 2012, March 28, 2012, p. 5,
http://cbo.gov/sites/default/files/cbofiles/attachments/03-28-2012TARP.pdf.
45 U.S. Treasury, Troubled Asset Relief Program: Monthly 105(a) Report—July 2012, August 10, 2012, p. 4,
http://www.treasury.gov/initiatives/financial-stability/reports/Documents/July%202012%20Monthly%20Report.pdf.
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The Role of TARP Assistance in the Restructuring of General Motors
Conclusion
After credit markets tightened and the recession reduced auto sales in the fall of 2008, General
Motors restructured its operations through bankruptcy and began operations as a new company in
July 2009. The Bush and Obama Administrations used TARP funds to provide capital to General
Motors during this time, in exchange for a majority ownership stake in the company. Without the
U.S. government assistance, GM would not have been able to pay creditors, suppliers, or workers
and would most likely have entered bankruptcy earlier with a less certain outcome. TARP support
enabled it to reorganize itself in a more orderly manner and may have reduced collateral damage
to many auto suppliers and some of the other automakers who buy parts from them. However, it
exposed the U.S. government to risk that not all the assistance would be recovered.
Both the Obama Administration and New GM’s senior management expressed interest in
reducing the U.S. government’s ownership stake in the company. Not long after it began
operations as a new company after bankruptcy, New GM and the U.S. Treasury agreed that there
should be an initial public offering of New GM stock in the latter half of 2010. The IPO was the
first step in removing GM from government ownership.
The GM IPO on November 18, 2010, was widely considered a success at the time it launched.
GM initially set a target price in the range of $25-$26 dollars per share. In the days prior to the
offering, market interest seemed strong, and the offering occurred at a price of $33 a share. In
addition, more shares were sold than originally intended due to the strength of investor demand.
As a result, the government was able to recoup more money by selling some of its shares than had
been anticipated, although it realized losses.
The U.S. government, the governments of Canada and Ontario, and the UAW VEBA trust still
own half of GM. It is expected that these shareholders will sell their some or all of their
remaining shares over the course of the next year or more. It is unclear how the U.S. government
will choose to dispose of its 500 million shares. One possibility would be for it to arrange a
secondary offering, at which it would offer a large number of shares for sale on a single date.
Other options would include selling additional shares in the stock market from time to time;
selling large blocks of shares to other investors in private transactions; or, should GM’s financial
strength permit, selling its shares to the company.
The nominal amount of its assistance to GM that the government has yet to recover is $26.2
billion. As the government’s entire investment in GM is now in the form of common shares, its
ability to recoup that sum will depend entirely upon GM’s share price, which in turn depends
heavily on investor perceptions of GM’s future profitability. GM’s shares will need to rise into the
$52-$53 range for the government to recoup the TARP assistance in full.
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Appendix. U.S. Government Financial Support for
GM Through the Troubled Asset Relief Program
Amount
Date Recipient/Source
($ in billions)
December 2008
Old GM
$13.40
April 2009
Old GM
$2.00
May 2009
Old GM
$4.00
GM Warranty Program
$0.36
June 2009
Old GM/New GM
$30.10
April 2009-April 2010
GM Supplier Receivables Programa $0.29
Total Funds Loaned
$50.15
Recoupment of Principal
November 2009
Partial repayment of Supplier Receivables loans
$0.14
December 2009/January 2010
Partial debt repayment
$1.04
February 2010
Partial repayment of Supplier Receivables loans
$0.10
March 2010
Partial debt repayment
$1.00
April 2010
Final debt repayment
$4.68
Final repayment of Supplier Receivables loans
$0.06
July 2010
Repayment for Warranty Program
$0.36
November 2010
Proceeds from sale of common equity
$13.5
December 2010
Repurchase of preferred stock
$2.1
March 2011-January 2012
Partial Repayment from bankruptcy proceeds
$0.14
Total
$23.12
Income Received
December 2008-April 2009
Interest on Old GM loans
$0.14
April 2009-April 2010
Interest for GM Supplier Receivables
$0.01
March 2010
Additional Note for GM Supplier Receivables
$0.05
October 2009-April 2010
Interest on New GM loans
$0.34
September 2009-December 2010
Dividends on Preferred Stock
$0.27
December 2010
Gain on Preferred Stock Sale
$0.04
Total
$0.85
Sources: U.S. Department of the Treasury, Troubled Asset Relief Program (TARP), Transactions Reports, various
dates, and Troubled Asset Relief Program (TARP), Dividends and Interest Report, various dates.
Note: Figures may not sum due to rounding. In December 2008, the U.S. Treasury provided $884 mil ion to
assist GM in GMAC’s rights offerings, separate from the $13.4 billion loaned for GM’s operations. While this was
provided to GM, it assisted GMAC and is tallied as GMAC assistance.
a. The original April 2009 Automotive Supplier Support Program commitment was $3.5 billion for use with
GM suppliers. This commitment was reduced to $2.5 billion in July 2009. Ultimately approximately $290
million of the $2.5 billion commitment was used.
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Author Contact Information
Bill Canis
Baird Webel
Specialist in Industrial Organization and Business
Specialist in Financial Economics
bcanis@crs.loc.gov, 7-1568
bwebel@crs.loc.gov, 7-0652
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