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 16, 2014
Congressional Research Service
7-5700
www.crs.gov
R41978
The Role of TARP Assistance in the Restructuring of General Motors
Summary
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. Concern about the economic impact of a possible collapse of large
parts of the U.S. automobile industry led both the Bush Administration and Members of Congress
to seek legislative avenues to assist the automakers. Ultimately, General Motors Corporation (Old
GM) and its successor General Motors Company (New GM) together received more than $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 new vehicles, and implemented changes to reduce retiree legacy costs.
The federal government has sold its shares in General Motors Co. in different ways over time,
including (1) a large initial public offering (IPO) in late 2010, (2) sale of stock directly to GM in
December 2012, and (3) ongoing sale of stock into the public market. The Treasury sold its last
shares of New GM in December 2013, recouping a total of $29.3 billion from these sales along
with $9.5 billion in principal repayments previously made by GM and $0.1 billion recouped in
the Old GM bankruptcy process. Under $1 billion in the loans to Old GM are still outstanding in
the uncompleted bankruptcy process, but, going forward, all of New GM’s connections to TARP
are complete. Restrictions arising from TARP participation including a ban on New GM owning
corporate jets, certain reporting requirements, and executive pay limits have been eliminated with
the final sale of stock.
GM was 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 government’s sales of its shares in GM, ending December 2013, realized $10.4 billion less
than the amount of its assistance for General Motors. For the U.S. government to have fully
recouped the nominal value of its $50.2 billion assistance, the government would have had to
receive an average price of more than $45 per share for its holdings. In reality, the government
received between $27.50 and $38.32 per share as it sold stock between December 2010 and
December 2013. GM stock reached its highest point since the 2010 IPO, nearly $42 a share, after
the government finished selling its GM stock in December 2013.
Congressional Research Service
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 .................................................................................................... 8
Elements of U.S. Government Ownership ..................................................................................... 10
Assessing the Cost of TARP Assistance for GM ........................................................................... 12
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 .................................................................... 9
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
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
Corporate Terminology in This Report
combined to create the weakest 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,
referred to in this report as “Old GM,” filed for
industrial countries. U.S. light vehicle
bankruptcy in June 2009. In July 2009, the majority of Old
production fell by more than 34% in 2009
GM’s assets and some of its liabilities were purchased by
from 2008 levels, but the year-over-year fall-
a new entity that was subsequently renamed “General
off was more acute for General Motors
Motors Company,” referred to as “New GM.” The term
Corporation (Old GM), whose U.S.
“GM” is used when both companies are referenced.
production dropped by 48%, and for Chrysler
Similarly, there are two companies commonly referred
LLC (Old Chrysler), whose U.S. production
to as “Chrysler.” Both are discussed in this report.
Chrysler LLC, referred to as “Old Chrysler,” filed for
fell by 57%.2 A similar pattern was reflected in
bankruptcy in April 2009. In June 2009, the majority of
U.S. light vehicle sales, which fell from just
Old Chrysler’s assets and some of its liabilities were
over 16.5 million units in 2007 to 10.4 million
purchased by a new legal entity that was subsequently
units in 2009.3
renamed “Chrysler Group,” referred to as “New
Chrysler.” The term “Chrysler” is used when both
companies are referenced.
The production and sales slides were serious
business challenges for all automakers, and
GMAC, Inc., changed its general corporate identity to
rippled through the large and interconnected
Al y Financial in May 2010, approximately a year after
introducing the name Ally Bank for its banking subsidiary.
motor vehicle industry supply chain, touching
Except for historical background and forward-looking
suppliers, auto dealers, and the communities
statements, this report will refer to the corporation as
where automaking is a major industry. Old
GMAC/Ally Financial.1
GM and Old Chrysler were in especially
precarious positions. The immediate crisis 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
companies4 received federal financial assistance from the Bush and Obama Administrations. As
discussed later in this report, that funding enabled Old GM and Old Chrysler to begin
restructuring their operations, a process that was 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 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 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
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.5
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 more than 900 million
shares of common equity received in return for assistance from the Troubled Asset Relief
Program (TARP). The Treasury has reported that the effective original cost of these shares in New
GM was $43.52 per share. Sales of stock made at lower prices result in losses being recorded by
the Treasury.6
New GM’s stock was offered in an initial public offering (IPO) in November 2010, with the U.S.
government selling more than 412 million shares, thus reducing the government’s ownership
share to 32%. No shares were sold for over two years following the IPO.
The U.S. government began selling its remaining 500 million shares of New GM stock in
December 2012, with the announced plan of divesting its remaining shares by early 2014. The
final sales of GM stock closed ahead of this 2014 deadline, in December 2013. All of these sales
were made at prices below the government’s $43.52 per share average cost. (See “Assessing the
Cost of TARP Assistance for GM,” below, for more information.) These sales effectively end
federal assistance to GM, although there are some government claims still outstanding in the
bankruptcy process of Old GM.7
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.
5 See Figure 1 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.
6 GM stock hit a high point (since its IPO) of nearly $42 per share on December 26, 2013, after the government
divestment was complete.
7 These claims, currently totaling over $800 million, seem unlikely to result in substantial further recoveries to the
government compared with the $10.3 billion in reported losses. The latest reported recoveries (December 27, 2013)
were $410,000.
8 William J. Holstein, Why GM Matters: Inside the Race to Transform an American Icon (Walker & Company, 2009),
p. 4.
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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:
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.
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.11 The decline in sales
further dried up financial resources that Old GM could have used.
• 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).
• 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.12 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
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.
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 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.
12 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.
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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.13 At the time of the bankruptcy, Old GM had obligations of nearly $30
billion to fully fund retiree health care and pension funds.14
• 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 Force15 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.16
Table 1. Top Sellers of Light Vehicles in the United States
(share of units sold)
Company 2000
2009
2013
General Motors
28.1%
19.9%
17.9%
Toyota 9.3%
17.0%
14.4%
Ford 23.1%
16.1%
15.9%
Honda 6.6%
11.0%
9.8%
Chrysler 11.7%
8.9%
11.6%
Source: 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.
13 Julie Appleby and Sharon Silke Carty, “Ailing GM Looks to Scale Back Generous Health Benefits,” USA Today,
June 23, 2005.
14 Bill Visnic, “UAW Cornered on VEBA?,” Edmunds, February 27, 2009, at http://www.autoobserver.com/2009/02/
uaw-cornered-on-veba.html.
15 The Auto Task Force was established by the Obama Administration in February 2009, was 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.
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.
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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 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 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.21
The authorities within TARP were very broad. When Congress did not pass specific auto industry
loan legislation,22 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.23
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 ($1.5 billion).
18 For more information on TARP see CRS Report R41427, Troubled Asset Relief Program (TARP): Implementation
and Status, by Baird Webel.
19 P.L. 110-343; 122 Stat. 3765.
20 P.L. 110-343, Division A, Section 3.
21 TARP, “Monthly 105(a) Report to Congress,” U.S. Department of the Treasury, July 2010, p. 10.
22 In December 2008, the House of Representatives passed H.R. 7321, authorizing the use of certain Department of
Energy funds as bridge loans to GM and Chrysler. Passed 237-170, the bill was not acted upon in the Senate. For a
complete description of Congress’s consideration of auto industry loan legislation in the fall of 2008, see out-of-print
CRS Report R40003, U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring, coordinated by
Bill Canis (available upon reurest).
23 See, for example, Congressional Oversight Panel (COP), September Oversight Report: The Use of TARP Funds in
Support and Reorganization of the Domestic Automotive Industry, September 9, 2009. This panel was created by the
(continued...)
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Table 2 summarizes the TARP assistance given to the U.S. motor vehicle manufacturing and
financing industries.24
Table 2. Summary of TARP Assistance for U.S. Motor Vehicle Industry
($ in billions)
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 -$2.9
$1.7
$0
Chrysler
Not
$1.5 $1.5 $0
$0.02
$0
Financial
Applicable
GM 0%
$50.2 $39.0 -$10.3
$0.8
$0.8
(New GM)
GMAC/Ally
63.5% $17.2 $8.2 $0
$4.1
$9.0
Financial
Source: U.S. Treasury, Daily TARP Update, December 31, 2013; Troubled Asset Relief Program: Monthly 105(a)
Report, various dates.
Note: Figures may not sum due to rounding. In December 2008, the Treasury provided $884 million 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 nearly half the government
stake in 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
(...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/.
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.
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Administration gave Old GM two months, until June 1, to devise a more thorough restructuring
and thereby qualify for more U.S. government aid.25
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, 2009.26 One continuing issue from the
bankruptcy that has drawn particular congressional interest is the treatment of some retirees of
Delphi Corporation, which had been a GM subsidiary until 1999, as Old GM had certain
liabilities related to Delphi’s pension plans. The House Committee on Oversight and Government
Reform held two hearings on the GM assistance and Delphi pension issues during the 112th
Congress.27 In addition, legislation entitled the Delphi Pensions Restoration Act of 2012 was
introduced in both the House (H.R. 6404) and the Senate (S. 3544).28 To date in the 113th
Congress, the House Committee on Oversight and Government Reform has held two additional
subcommittee hearings focusing on Delphi pension issues.29
GM also benefited financially during and after the bankruptcy process from previous policy
rulings by the Internal Revenue Service (IRS).30 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.31 Government holdings through
25 Old Chrysler’s Viability Plan was also rejected by the Obama Administration, and it was given 30 days to
restructure.
26 General Motors Company, Form 10-Q Quarterly Report, April 7, 2010, p. 37.
27 U.S. Congress, House Committee on Oversight and Government Reform, Delphi Pension Fallout: Federal
Government Picked Winners & Losers, So Who Won and Who Lost?, 112th Cong., 1st sess., November 14, 2011, at
http://oversight.house.gov/hearing/delphi-pension-fallout-federal-government-picked-winner-and-losers-so-who-won-
and-who-lost/; and U.S. Congress, House Committee on Oversight and Government Reform, The Administration’s
Auto Bailouts and the Delphi Pension Decisions: Who Picked the Winners and Losers?, 112th Cong., 2nd sess., July 10,
2012; at http://oversight.house.gov/hearing/the-administrations-auto-bailouts-and-the-delphi-pension-decisions-who-
picked-the-winners-and-losers/.
28 For more information on issues surrounding Delphi Corporation pensions, please see CRS Report R42076, Delphi
Corporation: Pension Plans and Bankruptcy, by John J. Topoleski.
29 U.S. Congress, House Committee on Oversight and Government Reform, Subcommittee on Government Operations,
Field Hearing: The Delphi Pension Bailout: Unequal Treatment of Retirees, 113th Cong., 1st sess., June 10, 2013, at
http://oversight.house.gov/hearing/the-delphi-pension-bailout-unequal-treatment-of-retirees/; and U.S. Congress, House
Committee on Oversight and Government Reform, Subcommittee on Government Operations, Oversight of the
SIGTARP Report on Treasury’s Role in the Delphi Pension Bailout, 113th Cong., 1st sess., September 11, 2013 at
http://oversight.house.gov/hearing/oversight-of-the-sigtarp-report-on-treasurys-role-in-the-delphi-pension-bailout/.
30 IRS notices on this issue include 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.
31 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.
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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.32 These tax savings are not counted
as part of TARP support. In theory, these tax rulings should have raised the value of the shares
held by the Treasury as well as those held by 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 five divisions: GM North America (GMNA), GM
Europe (GME), GM South America (GMSA), GM Financial, and GM International Operations
(GMIO).33 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 nine months of 2013, GM’s
joint ventures sold more than 2.3 million vehicles, approximately 32% of all its worldwide
sales.34
Table 3 shows GM’s sales and earnings worldwide from 2010 through 2012. It is noteworthy that
GM’s North American sales are more lucrative, as the larger cars, pickup trucks, and SUVs
widely sold in North America carry higher profit margins than the smaller vehicles popular
elsewhere in the world. Of the $7.9 billion earned in 2012, $7.0 billion was earned in North
America. Most other divisions lost money or broke even; GM’s GMIO division earned $2.2
billion.35
Table 3. General Motors Company Results
(comparing 2010, 2011, and 2012)
Net Sales &
Vehicles Sold
Earnings before
Revenue
Worldwide
Interest and Taxes
2010
$135.6 billion
8.3 million
$7.0 billion
2011
$150.3 billion
9.0 million
$8.3 billion
2012
$152.3 billion
9.3 million
$7.9 billion
Source: GM Annual Reports, 2011 and 2012.
Notes: Revenues are before intercompany transfers and corporate and other eliminations.
32 “GM’s Tax Shelter,” Wall Street Journal, July 31, 2009.
33 GM’s GMIO Division includes Asia Pacific, Africa, Middle East and Russia; China is the largest GM market in
GMIO.
34 CRS analysis of GM Chart Set, Third Quarter 2013 Results, released October 30, 2013.
35 CRS analysis of GM Chart Set, CY 2012 Results, February 14, 2013.
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According to GM, since 2009, it has announced investments of $10.1 billion in its U.S. facilities,
creating or retaining more than 26,500 jobs.36 GM’s annual reports show its worldwide
employment in Table 4, by major corporate divisions.
Table 4. General Motors Co. Worldwide Employment
(yearend, in thousands)
GM Unit
2010
2011
2012
GMNA 96
98
101
GME 40
39
37
GMIO 32
34
39
GMSA 31
33
32
GM Financial
3
3
4
Total Worldwide
202
207
213
Source: “Highlights,” General Motors Company 2011and 2012 Annual Reports.
The New GM of 2009 differed in a number of ways from the Old GM:37
• 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. In 2011, GM’s market share rose to 19.7% but dropped to 17.9%
in 2012 and 2013. 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.
36 . GM Press Release, “GM Invests Nearly $1.3 Billion for Five U.S. Plant Upgrades,” December 16, 2013,
http://media.gm.com/content/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2013/Dec/1216-
investments.html.
37 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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• 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 which 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.38 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 2010.39 The $2.1 billion in preferred stock was repurchased by New
GM in December 2010, following the company’s IPO.40
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, GM and AIG,
retaining only the large common shareholdings in Ally Financial. Table 5 details the government
ownership stakes in these companies.
Exercising managerial control was not a stated goal of acquiring 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.
38 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.
39 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.
40 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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• 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.41
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 sold the remaining shares
in stages, ending with a final sale on December 9, 2013.
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
GM
0%
60.8%
Initial public offering, sale
to GM, and gradual public
sale of stock
Chrysler 0% 9.9%
Negotiated
sale
GMAC/Al y Financial
63.5%
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. The government ownership stake in Ally was diluted due to a private placement sale of newly issued
Ally shares to private investors, not due to the sale of existing government shares.
Figure 1 shows the ownership structure of GM in 2009 when the new company emerged from
bankruptcy and its structure after the Treasury sold the last of its stock in December 2013.
41 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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Figure 1. GM Ownership Structure
(2009 vs. 2014)
Source: General Motors Company.
Note: The 2009 ownership structure is how the new company emerged from bankruptcy.
Assessing the Cost of TARP Assistance for GM
As detailed in the Appendix, the U.S. government through TARP aided the combined Old GM
and New GM with approximately $50.2 billion in loans in 2008-2009. After the bankruptcy
process in 2009, the government held the following assets: (1) 60.8% of the equity in New GM,
(2) $7.4 billion in loans aiding New GM, (3) $2.1 billion in preferred stock, and (4) nearly $1
billion in claims on the old GM in the bankruptcy process.
The government recouped the following from the assistance:
• $29.3 billion from equity sales;
• $7.4 billion in loan repayments;
• $2.1 billion in preferred stock repurchases;
• $0.1 billion in bankruptcy recoveries; and
• $0.8 billion in dividends and interest payments.
These, like all proceeds from TARP, are specified by the TARP statute to “be paid into the general
fund of the Treasury for reduction of the public debt.”42 The total recoupment from the GM
assistance sums to approximately $39.75 billion. Comparing this amount to the $50.2 billion in
loans results in an approximately $10.4 billion gap between the amount outlaid and the amount
recouped, with approximately $0.8 billion still outstanding in the Old GM bankruptcy. (Some
42 P.L. 110-343 §106(d). The statute does not specifically mention dividend receipts. In general, however, incoming
funds are remitted to the Treasury’s general fund, so even if TARP dividends are not considered to be covered by this
section, the funds would still flow to the same place.
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amount of this $0.8 billion theoretically could be recouped, but substantial recoupment of these
funds does not seem likely based on the recoupment patterns to date.)
The $10.4 billion shortfall between outlays and recoupment, however, is not the sole method
economists might use to establish whether the government gained or lost 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 some of these additional factors into account. The TARP
statute required that TARP assistance be scored in 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 risk-adjusted market interest rates
and reflected on the federal budget at the time of the estimate. The estimates produced according
to these formulas, however, have only been reported in aggregate. For example, CBO estimated
in May 2013 that the budgetary cost of TARP assistance for the entire auto industry would be $17
billion,44 and the Treasury in coordination with OMB estimated lifetime cost as of September 30,
2013, to be $14.7 billion.45 Neither of these analyses, however, reports separately the individual
gains or losses on Chrysler, GM, and GMAC/Ally Financial. No complete cost estimate has been
performed since the final sale of GM stock.
43 2 U.S.C. §§661-661f.
44 Congressional Budget Office, Report on the Troubled Asset Relief Program—May 2013, October 23, 2013, p. 5,
available at http://cbo.gov/publication/44256.
45 U.S. Treasury, Troubled Asset Relief Program: Monthly 105(a) Report—November 2013, December 10, 2013, p. 5,
available at http://www.treasury.gov/initiatives/financial-stability/reports/Pages/default.aspx.
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Appendix. U.S. Government Financial Support for
GM through the Troubled Asset Relief Program
Amount
Date Recipient/Source
($ 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-December 2013
Partial repayment from bankruptcy proceeds
$0.1
December 2012
Proceeds from sale of common equity
$5.5
April 2013
Proceeds from sale of common equity
$1.6
June 2013
Proceeds from sale of common equity
$1.0
September 2013
Proceeds from sale of common equity
$3.8
November 2013
Proceeds from sale of common equity
$2.6
December 2013
Proceeds from sale of common equity
$1.2
Total
$39.0
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
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Sources: U.S. Department of the Treasury, Daily TARP Update for 12/31/2013, TARP Transactions Reports, January
2, 2014, and TARP Dividends and Interest Report, various dates.
Note: Figures may not sum due to rounding. In December 2008, the Treasury provided $884 million 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 is not tallied here as it ultimately resulted in holdings of GMAC common equity.
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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