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Project on Government Oversight

Should Taxpayers Say Goodbye to Their Investment in the Auto Industry?

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November 2, 2009

For anyone who is worried about taxpayers fully recouping their $80 billion investment in the auto industry, a report released today by the Government Accountability Office (GAO) will hardly be reassuring.

One major problem, according to financial and industry experts interviewed by the GAO, is that Treasury has conflicting interests stemming from its significant financial stake in the automakers: “Treasury’s general goals of exiting as soon as practicable, maximizing return on investment, and improving the strength and viability of Chrysler and GM are reasonable but possibly competing” (the Congressional Oversight Panel made a similar point in its recent report on the auto industry bailout).

To make matters worse, the GAO raised concerns that Treasury does not have the necessary expertise to navigate these complicated trade-offs:

“Because of the particular needs of the auto companies and the unprecedented nature of providing such assistance, Treasury hired or contracted with a number of individuals with expertise in the auto industry, equity investment, and relevant areas of law...Since those agreements have been finalized and the workload has declined, two-thirds of the original professional staff has left...given the wind-down of the auto team—and the associated loss of dedicated staff with industry- and company-specific knowledge and expertise—we are concerned that Treasury may not have sufficient expertise to actively oversee and protect the government’s ownership interests, including determining when and how to divest these interests.” [Emphasis POGO’s]

As the report points out, Treasury has several options for divesting the government's interests in the automakers, including public sales and private negotiated sales, which could be made all at once or in batches. But no matter what Treasury decides to do, the GAO predicts that taxpayers will end up on the losing end:

“Regardless of the sales strategies used, the companies will have to grow substantially in order to reach values at which Treasury would recover the entirety of its equity investment upon sale of its equity, which Treasury and others consider to be unlikely.”

The report concludes, among other things, that Treasury needs to establish divestment criteria so that it can adequately explain to Congress and the American public how and why a decision was made to sell off the government’s interests. This could prove to be a significant challenge for an agency that has been less than forthright in explaining the strategy behind its other bailout programs.

The rest of the GAO report can be viewed here.

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO’s investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.