Serious questions being raised by Congressmen and the TARP inspector general over GM's supposed "payback" of $6.7 billion in TARP loans, and whether the "payback" was actually a roundtripping of taxpayer money the carmaker already had on hand in a slushpot of your money.
On top of that, we found the old, bankrupt shell of GM still owes TARP nearly $1 billion in loans. Whitacre runs "new" GM.
And another problem: Taxpayers could get whacked again, this time due to teetering pensions at the automakers, the U.S. Government Accountability Office says.
And that puts the Treasury in a conflict of interest, since Treasury oversees the taxpayers' stock in GM and Chrysler and federal loans to the two, and the Treasury also oversees federal bailouts of pensions and the IRS, which governs pensions as well, the GAO says.
??The two carmakers face an onerous deadline, the GAO, Congress's watchdog, says.
Within five years, they will have to pay $15.7 billion into the carmakers' union pensions to comply with federal funding requirements, ($12.3 billion to GM's pensions, $3.4 billion to Chrysler's plans), according to the GAO report. Fox News analyst James Farrell red-flagged this report, and provides analysis here.
If the carmakers don't pony up, the GAO says the government, meaning taxpayers, will have to step in and cover about $14.5 billion of this shortfall, based on estimates from the Pension Benefit Guaranty Corp. (PBGC).
But in a letter FOX Business has obtained, the Treasury avoided the GAO's request that it “report publicly” on what it plans to do about its conflict handling both the Treasury's “auto investments” as well as overseeing the “status” of the carmakers' underfunded pensions.
"It would be inappropriate for Treasury in our capacity as a shareholder to separately report on the pension asset and liabilities under the GM and Chrysler pension plans," says the letter from Herbert M. Allison, Treasury's assistant secretary for financial stability, who oversees the TARP investments.
Allison adds: "We suggest directing these questions to GM and Chrysler."
The GAO says: “Until Treasury either sells or liquidates the equity it acquired in each of the companies in exchange for the TARP assistance, its role as shareholder creates potential tensions with its role as pension regulator and overseer of PBGC in its role as pension insurer.”
It adds: “Tensions could arise if decisions must be made between allocating funds to company assets (thereby protecting shareholders, including taxpayers) or to pension fund assets (thereby protecting plan participants),” meaning union retirees at the carmakers.
Taxpayer Bailouts of GM and Chrysler
Since 2008, the federal government has committed to providing more than $81 billion in TARP funds to assist the automobile industry. The largest part of the program's funding—about $62 billion—was provided to help GM and Chrysler, the GAO says.
Treasury owns 61% of the equity in GM and 9.9% of the equity in Chrysler. It has loaned about $14 billion to the two. GM repaid $6.7 billion in loans back to the US, and another $1.4 billion to the Canadian government.
The way the TARP funding breaks down for GM: GM was promised a total of $50.7 billion in TARP funding. It owed $7.1 billion in direct loans, but since it paid off the loan early, it owed a lower amount, $6.7 billion.
The balance of the funding was invested in GM's common and preferred stock.
GM Still Owes Taxpayer Loans
And Sen. Chuck Grassley (R-IA) and the inspector general for TARP, Neil Barofsky, say that GM used other bailout money to pay back the federal government, and not from money GM is earning selling cars. Fox News reported this story yesterday, click here.
Treasury's Tough Choices
The GAO warns that both GM and Chrysler must return to profitability fast because, if not, their pension plans would be terminated, and the “PBGC would be hit hard both financially and administratively.” To read the full report, click here.
If Treasury is still an equity owner of the automakers when these pension funding obligations come due, Farrell says it faces these tough choices:
*It can approve the payments to the pensions, which would benefit the union pension holders but reduce the likelihood that taxpayers will get their money back on the involuntary investment made in GM and Chrysler stock as well as taxpayers' status as lenders to the automakers; OR
*Decline to address the underfunding and let the plans get involuntarily terminated–costing union members approximately $23 billion in overall lost benefits ($18 billion for GM; $5 billion for Chrysler), and costing the PBGC (taxpayers) approximately $14.5 billion.
“The only option where GAO sees taxpayers not getting the short end of the stick?” Farrell says. “Praying that the auto companies rapidly return to profitability and find $15.7 billion in excess cash lying around in the companies' corporate couches between now and 2014.”
Rising Bankruptcies Hit PBGC
During 2009, there was a rise in the number of supplier bankruptcies, liquidations, and pension plan terminations, the GAO says. In July, the nation's largest auto parts supplier, Delphi Corporation, terminated its pension plans with expected losses to PBGC of over $6.2 billion, the GAO says.
The auto sector faces unfunded pension liabilities of about $77 billion, with PBGC's exposure for potential losses due to unfunded benefits of about $42 billion, leaving retirees facing the potential loss of the $35 billion difference through reduced benefits. The PBGC's estimates are as of January 2009.
Carmakers' Biggest Pensions in the Country
The GAO says: “Auto manufacturers remain sponsors of some of the largest private defined benefit plans in the United States.”
As of year-end 2007, GM had the largest pension plan in the country, “by a considerable margin, with nearly 60% more benefit obligations than the plan sponsor ranked second, AT&T. As of the beginning of 2008, Chrysler would have ranked in the top 10 company pension plans in the U.S.
“The fate of these pension plans affects not only the benefits of current and future auto company retirees, but also the financial well-being of the Pension Benefit Guaranty Corporation (PBGC)—the federal corporation that insures private sector defined benefit plans,” the GAO says.
The carmakers' pension threat to taxpayers comes as “GM, Chrysler, and the Ford Motor Company—have seen their share of the domestic market drop from 64.5% in 2001 to 47.5% in 2008. Prior to restructuring, GM and Chrysler reported losses in 2008 totaling $31 billion and $8 billion, respectively,” the GAO says.
GAO says it had already recommended that “Treasury report to Congress on how it plans to assess and monitor the companies' performance to help ensure the companies are on track to repay their loans and to return to profitability.”
It says that in response, “Treasury said the agency intends to develop an approach for reporting on its investments in the auto industry that strikes an appropriate balance between transparency and the need to avoid compromising either the competitive positions of these companies or Treasury's ability to recover taxpayer funds.”
But the GAO says that after their bailouts, the automakers made few changes to its pension plans. “The only significant change to pension benefits that occurred was the elimination of a future pension benefit increase..to compensate UAW retirees,” the GAO reports, and that pension benefits would remain in place for at least one year,” subject to change.