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
January 3, 2013
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 to reduce
retiree legacy costs, which had been a major financial drain.
The federal government has sold its shares in General Motors Co. in two ways. 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, continued to hold significant stakes in the company. Of the 550 million shares sold
in the IPO, the U.S. Treasury sold approximately 412 million, for which it received $13.5 billion.
This sale left the U.S. Treasury owning 32% of the company’s common shares. The only capital
New GM itself raised through the IPO was $4.9 billion from the simultaneous sale of preferred
stock.
In December 2012, the U.S. Treasury announced the sale of an additional 200 million shares
priced at $27.50 per share ($2.00 per share above the market price on December 20, 2012). These
shares were purchased directly by New GM itself for $5.5 billion, reducing the government’s
ownership stake in New GM to 22%. At the same time, the Treasury announced that it expects to
sell the remainder incrementally by March 2014 and that it has removed restrictions on New GM
owning corporate jets as well as certain reporting requirements. TARP-imposed executive pay
limits, however, will remain.
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 its emergence from bankruptcy, and the company is once again
consistently profitable. To date, the U.S. government has realized a $7.5 billion loss on its
investment in General Motors. Future sale of the remaining 300 million GM shares 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 remaining shares would need to
sell for nearly $70 per share, well more than double the price that has been received by the U.S.
government in past sales.
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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 ....................................................................................... 12
Conclusion ..................................................................................................................................... 13
Figures
Figure 1. GM Ownership Structure ............................................................................................... 11
Tables
Table 1. Top Sellers of Light Vehicles in the United States ............................................................. 3
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 in which the U.S. Government held Large Stakes under TARP .................... 11
Appendixes
Appendix. U.S. Government Financial Support for GM through the Troubled Asset Relief
Program ...................................................................................................................................... 14
Contacts
Author Contact Information........................................................................................................... 15
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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
Corporate Terminology in This Report
combined to create the worst market in
As a result of bankruptcy proceedings, there are two
decades for production and sale of motor
companies commonly referred to as “GM.” Both are
vehicles in the United States and other
discussed in this report. General Motors Corporation
filed for bankruptcy in June 2009. In this report, that
industrial countries. U.S. light vehicle
company is referred to as “Old GM.” In July 2009, the
production fell by more than 34% in 2009
majority of Old GM’s assets and some of its liabilities
from 2008 levels, but the year-over-year fall-
were purchased by a new entity that was subsequently
off was more acute for General Motors
renamed “General Motors Company.” In this report, it is
Corporation (Old GM), whose U.S.
referred to as “New GM.” The term “GM” is used when
both companies are referenced.
production dropped by 48%, and for Chrysler
LLC (Old Chrysler), whose U.S. production
Similarly, there are two companies commonly referred
to as “Chrysler.” Both are discussed in this report.
fell by 57%.2 A similar pattern was reflected in
Chrysler LLC filed for bankruptcy in April 2009. In this
U.S. light vehicle sales, which fell from just
report, that company is referred to as “Old Chrysler.” In
over 16.5 million units in 2007 to only 10.4
June 2009, the majority of Old Chrysler’s assets and
million units in 2009.3
some of its liabilities were purchased by a new legal
entity that was subsequently renamed “Chrysler Group.”
In this report, it is referred to as “New Chrysler.” The
The production and sales slides were serious
term “Chrysler” is used when both companies are
business challenges for all automakers, and
referenced.
rippled through the large and interconnected
GMAC, Inc., changed its general corporate identity to
motor vehicle industry supply chain, touching
Al y Financial in May 2010, approximately a year after
suppliers, auto dealers, and the communities
introducing the name Ally Bank for its banking subsidiary.
where auto-making is a major industry. Old
Except for historical background and forward-looking
GM and Old Chrysler were in especially
statements, this report will refer to the corporation as
precarious positions.4 The immediate crisis
GMAC/Ally Financial.1
that brought these two companies to
bankruptcy was a loss of financial liquidity as the banking system’s credit sources froze and
neither company had enough internal reserves to weather the economic storm. As a result, they
turned to the U.S. government for assistance in November 2008.
In December 2008 and the early months of 2009, both automakers and two auto-financing
companies5 received federal financial assistance from the Bush and Obama Administrations. As
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 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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The Role of TARP Assistance in the Restructuring of General Motors
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.
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 boards of directors were appointed for both New GM and New Chrysler, with
New GM’s board members 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’s retiree healthcare trust.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 November 2010 for $33 per share, with the U.S.
government selling over 412 million shares. Following the IPO, GM shares rose to a peak of over
$39 per share in early 2011, and reached a low of $18.72 per share on July 25, 2012.
The U.S. government renewed its interest in selling some of its remaining 500 million shares of
New GM stock in December 2012 when it announced the sale of 200 million shares at $27.50 per
share. The U.S. government received $5.5 billion from this sale and reduced its ownership stake
in New GM to 22.0%.
The amount of the original GM loans that the U.S. government will recoup will depend on the
price it receives for the remaining 300 million shares. The Treasury has announced that it will sell
these remaining shares by March 2014, subject to market conditions. The effective original cost
of the U.S. government shares in New GM was approximately $43.50 per share. To break even
following the previous sales at less than this amount, the Treasury would need to sell its
remaining shares in New GM for an average price of nearly $70 a share.
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 2009.7 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
6 See Error! Reference source not found. below for the details of the ownership structure of GM. For more
information on Chrysler, see CRS Report R41940, TARP Assistance for Chrysler: Restructuring and Repayment Issues,
by Baird Webel and Bill Canis.
7 William J. Holstein, Why GM Matters: Inside the Race to Transform an American Icon (Walker & Company, 2009),
p. 4.
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financial meltdown. As a consequence, the company’s executives tried to arrange U.S.
government bridge loans beginning in the fall of 2008.8 As Old GM’s then-Chief Executive
Officer (CEO) Fritz Henderson stated in the company’s bankruptcy court filing:
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.9
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.
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 U.S. 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.10 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 and to under 20% in 2009 (see Table 1 below).
Table 1. Top Sellers of Light Vehicles in the United States
Share of units sold
Company 2000
2009
2012
General Motors
28.1%
19.9%
17.9%
Toyota 9.3%
17.0%
14.4%
Ford 23.1%
16.1%
15.5%
Honda 6.6%
11.0%
9.8%
8 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.
9 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.
10 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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Company 2000
2009
2012
Chrysler 11.7%
8.9%
11.4%
Sources: “U.S. Light Vehicle Sales,” Market Data Book, Automotive News, 2002, and “U.S. Car and Light Truck
Sales by Make, 2009 and 2012,” 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.11 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.12 Old GM had obligations of nearly $30 billion to fully fund retiree
health care and pension funds.13
• 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 Force14 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
fuel efficiency. These vehicles, such as pickup trucks and sport utility vehicles,
had been critical to Old GM’s profitability.15
11 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.
12 Julie Appleby and Sharon Silke Carty, “Ailing GM Looks to Scale Back Generous Health Benefits,” USA Today,
June 23, 2005.
13 Bill Visnic, “UAW Cornered on VEBA?,” Edmunds, February 27, 2009, at http://www.autoobserver.com/2009/02/
uaw-cornered-on-veba.html.
14 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.
15 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.
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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 George W. Bush Administration in December 2008 and January
2009. At that time, $24.8 billion in assistance was provided to the four companies,16 the first of
what would eventually total nearly $80 billion in assistance through the Troubled Asset Relief
Program.17 TARP was authorized by the Emergency Economic Stabilization Act (EESA),18
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.19 According to the Treasury,
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.20
The authorities within TARP were very broad. When Congress did not pass specific auto industry
loan legislation,21 the Bush Administration turned to TARP for funding, arguing that failure to
provide assistance to the auto industry would make the recession much worse and would impose
other costs on federal taxpayers, such as providing unemployment benefits for displaced workers.
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 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 not
without controversy, and questions were raised about the legal basis for the assistance and the
manner in which it was carried out.22
16 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).
17 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.
18 P.L. 110-343, 122 Stat. 3765.
19 P.L. 110-343, Division A, Section 3.
20 TARP, “Monthly 105(a) Report to Congress,” U.S. Department of the Treasury, July 2010, p. 10.
21 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.
22 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
(continued...)
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Table 2 summarizes the TARP assistance given to the U.S. motor vehicle manufacturing and
financing industries.23
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
$1.7 billion
$0
billion
Chrysler
Not
$1.5
$1.5 billion
$0
$0.02 billion
$0
Financial
Applicable
billion
GM 22.0%
$50.2
$28.7 billion
-$7.5 billion
$0.8 billion
$13.9 billion
(New GM)
billion
GMAC/Ally
73.8% $17.2 $2.5 billion
$0
$3.3 billion
$14.6 billion
Financial
billion
Source: U.S. Treasury, Daily TARP Update, December 26, 2012; Troubled Asset Relief Program: Monthly 105(a)
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 funds loaned for GM’s operations. While the funds were
provided to GM, they are included in the GMAC/Ally assistance as they resulted in government ownership of
35% of GMAC.
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 Auto Task Force. (A complete listing of GM’s TARP loans
and related payments to the government can be found in the Appendix.)
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.24
(...continued)
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/.
23 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.
24 Old Chrysler’s Viability Plan was also rejected by the Obama Administration, and it was given 30 days to
(continued...)
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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, 2009.25
GM also benefited financially during and after the bankruptcy process from previous policy
rulings by the Internal Revenue Service (IRS).26 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.27 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.28 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. To whatever degree these tax savings do increase the value of New
GM, this benefit would also accrue to other common shareholders.
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
2012, over 47% of GM’s vehicle sales were outside North America and Europe, primarily in
developing countries in Asia. In China alone in the first 11 months of 2012, GM’s joint ventures
there sold 2.6 million vehicles, approximately 30% of all its worldwide sales. In 2010, GM sales
in China exceeded those in the United States for the first time.29
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
(...continued)
restructure.
25 General Motors Company, Form 10-Q Quarterly Report, April 7, 2010, p. 37.
26 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.
27 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.
28 “GM’s Tax Shelter,” Wall Street Journal, July 31, 2009.
29 “GM’s China Sales Pass U.S. for First Time in History,” The Economic Times, January 24, 2011.
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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.”30
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.
The New GM of 2009 differed in a number of ways from the Old GM:31
• 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.
30 Daniel F. Akerson, Chairman and CEO, “Letter to Stockholders,” in Vision in Motion, General Motors Company
2011 Annual Report, p. 2.
31 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.
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• 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. In 2011, GM’s market share rose to 19.7% but dropped to 17.9%
in 2012.32 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.33 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 2010.34 The $2.1 billion in preferred stock was repurchased by New
GM in December 2010, following the company’s IPO.35
32 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 Error! Reference source not found.. Sourced from
the Automotive News database.
33 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.
34 According to the Special Inspector General for TARP, “all of these payments were made, with Treasury’s
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.
35 U.S. Treasury, “General Motors to Repurchase Treasury Preferred Stock,” press release, October 28, 2010,
http://financialstability.gov/latest/pr_10282010.html.
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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, Chrysler, and AIG 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.36
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. In December 2012, the U.S. government also sold 200 million shares directly to GM at
a 7.9% premium over the market price at the time. It has not indicated exactly how it will sell the
remaining 300 million shares, although a target date of March 2014 has been announced for the
sale of all GM shares held by the U.S. government.
36 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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Table 5. Companies in which the U.S. Government held Large Stakes under TARP
Current Government
Maximum Government
Method of Sale of
Company
Ownership Share
Ownership Share
Ownership Stake
Initial public offering, sale
GM 22.0%
60.8% to GM,
and future gradual sale of
stock
Chrysler 0% 9.9%
Negotiated
sale
GMAC/Al y Financial
73.8%
73.8%
Not determined
AIG 0%
92%
Secondary public offering
and gradual sale of stock
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.
Figure 1 shows the ownership structure of GM in 2009 when the new company emerged from
bankruptcy and its current structure after the U.S. Treasury sold 200 million shares in December
2012.
Figure 1. GM Ownership Structure
2009 vs. 2013
Source: General Motors Company.
Note: The 2009 ownership structure is how the new company emerged from bankruptcy.
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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.37 An additional $2.1 billion was converted into shares of
preferred stock held by the U.S. Treasury which were redeemed in December 2010. The
approximately $40.7 billion remaining was effectively converted into an initial 60.8% equity
stake.38 The partial sale of this stock has returned approximately $19 billion and the U.S. Treasury
has received approximately $0.8 billion in dividends and interest along with approximately $0.1
billion in other recoveries from the bankruptcy process of Old GM. 39
Offsetting the original $50.2 billion in loan principal with the total of repayments, recoveries and
other income leaves approximately $20.7 billion to be recouped. The government now holds
approximately 300 million shares, or 22.0% of GM’s common equity. In order for the
government’s remaining 22.0% of the company to be worth $20.7 billion, the price of GM stock
would need to rise to nearly $70 per share, well more than double what the U.S. government has
received for its previous sales of GM stock. If the Treasury follows through on its announced plan
of selling the remaining stock by early 2014, it would require an extraordinary rise in GM stock
for the government to recoup the total nominal value of its assistance to GM.
Whether or not the government is able to sell the remaining common shares at a sufficient price
to recoup the 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.40 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. For example, CBO estimated in October 2012
that the budget cost of the TARP assistance for the entire auto industry would be $20 billion,41
and the Treasury in coordination with OMB estimated lifetime cost as of September 30, 2012, to
be $24 billion.42 Neither of these analyses, however, reports separately the individual gains or
37 Seven installments were paid between November 2009 and July 2010.
38 Approximately $1 billion of the debt remained legally owed by Old GM; however, little of this has been recovered
through the bankruptcy process.
39 Proceeds from all TARP repayments, such as the sales of GM stock, are specified by the TARP statute to “be paid
into the general fund of the Treasury for reduction of the public debt.” per P.L. 110-343, §106(d).
40 2 U.S.C. 661-661f.
41 Congressional Budget Office, Report on the Troubled Asset Relief Program—October 2012, October 11, 2012, p. 4,
http://www.cbo.gov/sites/default/files/cbofiles/attachments/TARP10-2012_0.pdf.
42 U.S. Treasury, Troubled Asset Relief Program: Monthly 105(a) Report—November 2012, December 10, 2012, p. 5,
http://www.treasury.gov/initiatives/financial-
(continued...)
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losses on Chrysler, GM, and GMAC/Ally Financial. These estimates were made before the
Treasury sold 200 million GM shares in December 2012.
Conclusion
After credit markets tightened and the recession reduced auto sales in the fall of 2008, General
Motors restructured through bankruptcy and began operation as a new company in July 2009. The
Bush and Obama Administrations used TARP funds to provide capital to General Motors during
this time, ultimately receiving in exchange 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 that bought parts
from them. However, it exposed the U.S. government to the risk that not all the assistance would
be recovered.
Not long after it began operation 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, selling 500 million shares of New GM stock, was the first step in removing
New GM from government ownership. The GM IPO on November 18, 2010, was widely
considered a success, occurring at a price of $33 a share, well above GM’s initial target price of
$25-$26 per 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 than had been
anticipated, although it realized losses on those shares nonetheless.
Even following the IPO, the U.S. government, the government of Canada, GM pension fund, and
the UAW VEBA trust owned nearly half of GM. With the U.S. government’s sale of GM stock in
December 2012, private investors now own the majority of New GM stock (51.8%) for the first
time since the bankruptcy. The U.S. Treasury’s December 2012 announcement also moves New
GM further away from government control in other ways, as Treasury agreed to waive certain
restrictions on the company— such as the ban on purchasing private jets and requirements for
specified levels of U.S. manufacturing. Caps on executive pay, which GM has said adversely
affect its ability to retain and attract talent, will remain.
The nominal amount of its assistance to GM that the government has yet to recover is $20.7
billion (counting recoupment of principal and income received, as shown in the Appendix). As
the government’s entire holding in GM is now in the form of common shares, its ability to recoup
that sum will depend solely upon GM’s share price, which in turn depends heavily on investor
perceptions of GM’s future profitability. GM’s shares would need to approach $70 per share for
the government to recoup the entire nominal amount of TARP assistance, well above the share
price at any time since GM reemerged as a publicly traded company.
(...continued)
stability/reports/Documents/November%202012%20Monthly%20Report%20to%20Congress.pdf.
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Appendix. U.S. Government Financial Support for
GM through the Troubled Asset Relief Program
Amount
Date Recipient/Source
($ in billions)
December 2008
Old GM
$13.4
April 2009
Old GM
$2.0
May 2009
Old GM
$4.0
GM Warranty Program
$0.4
June 2009
Old GM/New GM
$30.1
April 2009-April 2010
GM Supplier Receivables Program
$0.3
Total Funds Loaned
$50.2
Recoupment of Principal
November 2009
Partial repayment of Supplier Receivables loans
$0.1
December 2009/January 2010
Partial debt repayment
$1.0
February 2010
Partial repayment of Supplier Receivables loans
$0.1
March 2010
Partial debt repayment
$1.0
April 2010
Final debt repayment
$4.7
Final repayment of Supplier Receivables loans
$0.1
July 2010
Repayment for Warranty Program
$0.4
November 2010
Proceeds from sale of common equity
$13.5
December 2010
Repurchase of preferred stock
$2.1
March 2011-October 2012
Partial Repayment from bankruptcy proceeds
$0.1
December 2012
Proceeds from sale of common equity
$5.5
Total
$28.7
Income Received
December 2008-April 2009
Interest on Old GM loans
$0.1
April 2009-April 2010
Interest for GM Supplier Receivables
$0.01
March 2010
Additional Note for GM Supplier Receivables
$0.1
October 2009-April 2010
Interest on New GM loans
$0.3
September 2009-December 2010
Dividends on preferred stock
$0.3
December 2010
Gain on preferred stock sale
$0.04
Total
$0.8
Sources: U.S. Department of the Treasury, Daily TARP Update for 12/27/2012, TARP Transactions Reports, various
dates, and 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 is not tallied here as it ultimately resulted in holdings of GMAC common equity.
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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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