Dear Mr. Secretary:
On April 21, 2010, The Department of Treasury announced that General Motors (GM) repaid the final portion of its debt obligation under the Troubled Assets Relief Program (TARP), totaling $6.7 billion. But the remaining ownership interest of the U.S. government in GM is significant: $2.1 billion in preferred stock and 60.8 percent in common equity. Given this, it appears to be misleading that GM's Chairman and CEO, Ed Whitacre, wrote a piece in The Wall Street Journal called, "The GM Bailout: Paid Back in Full." It is also unclear whether, as you stated in a press release, this is "a positive sign for our auto investment."
In a recent letter, Senator Grassley stated, "It is unclear how GM and the Administration could have accurately announced yesterday that GM repaid its TARP loans in any meaningful way." The repayment of debt was not directly tied to teh automaker's profitability, but rather resulted from swapping capital GM received from TARP to pay down debt owed to Treasury.
The fact remains that the U.S. government still owns GM (60.8% of GM's common equity). Both before and during the bankruptcy of "Old GM," the government bailed out the automaker by "investing" about $48 billion in the company through the TARP Automotive Industry Financing Program. After bankruptcy, this "investment" was converted to $6.7 billion in debt, which GM has repaid with government funds, $2 billion in preferred shares, and an amount representing 60.8% of common shares. This means that roughly $39 billion from the TARP investment has been exchanged for what resulted in a common equity stake in post-bankruptcy GM.
Unfortunately, there is little publically-available information on the current financial health of GM, so it is hard to determine the exposure to the taxpayer. While current law and the changes the Administration is pursuing in financial services legislation calls for thorough, frequent, and transparent reporting by private companies on their financial condition, there appears to be a lack of transparency in the exposure to the taxpayer from the over $40 billion still outstanding in funds provided to GM. As a first step to disclosing necessary information, please answer the following:
- What are the market value of the government's preferred shares and the 60.8% share (in other words, what could taxpayers expect to receive in return if Treasury divested all of its common equity in GM today)?
- Do you have an updated estimate of the cost of the GM bailout to the taxpayer and if you do what is that cost after repayment of the $6.7 billion loan?
To put it in context, The Congressional Budget Office (CBO) reported in March 2010 that it expects the Federal Government to lose about $34 billion of the $82 billion disbursed to all TARP automotive programs, including investments in GM, Chrysler and GMAC. An April 23, 2010 letter you sent to Congressional leaders reports a total cost for auto industry support of $28 billion. Of the roughly $80 billion committed to auto financing program, GM is by far the most significant allocation, representing about half of the total commitments. Since the above estimates were made, the Administration and GM have gone out of their way to highlight the loan repayment and suggest that is has erased the government's exposure to GM. In light of these comments and press stories, it is important that the public get a revised estimate of the Federal Government's potential exposure and the current estimate of the cost to taxpayers.
It is critical the Administration be forthright and transparent that over $40 billion in taxpayer funds are at risk. We ask that Treasury provide an estimate of the market value of the preferred shares and the government's 60.8% stake in GM in comparison to what was spent to bail out GM, as well as any additional disclosures that would be expected of a public company to investors.
Thank you and we look forward to your response.
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