Is that our tax money under the hood? Then-candidate Obama tours a Chrysler plant.
Despite an increasingly optimistic outlook for the U.S. auto industry, taxpayers shouldn’t expect to recover the $80 billion of their tax dollars that have been invested in the survival of General Motors and Chrysler, according to government analysts.
A new report by the General Accounting Office contends that even when the two automakers were healthy, they simply wouldn’t have been worth enough for the government to recover its investment once it sells off its 61% stake in GM and 10% share of Chrysler.
This is not the first time such a conclusion has been reached as Ken Zino has previously reported. In fact, the GAO report appears to be a rehash of a report released in September by the Congressional Oversight Panel.
Getting the valuation of the two companies up to a profitable level is even less likely now, according to the GAO, a nonpartisan agency that serves as the investigative arm of Congress.
“Treasury is unlikely to recover the entirety of its investment in Chrysler or GM, given that the companies’ values would have to grow substantially above what they have been in the past,” said a GAO summary of its latest findings.
The independent agency also reported that the Obama Administration, despite its promise of taking a “hands-off” position when it comes to the two automakers, has been doing more than just keeping a close eye on the status of the companies’ finances. Among other things, the White House has set some requirements for production levels to try to improve their bottom lines.
The likelihood of recovering the government investment in GM and Chrysler has been a bone of contention ever since the automakers first went to Washington, late last year, seeking a bailout. The outgoing Bush Administration offered a relatively small handout, but delayed action on the full financial requests, leaving that decision to President Barack Obama.
On March 31st, the new commander-in-chief announced a list of tough requirements for the struggling carmakers, effectively forcing them both to go through bankruptcy reorganization. When Chrysler emerged, in June, the government kept a 10% stake, but gave effective control to the Italian automaker, Fiat. (The new Chrysler managers will, on Wednesday, roll out their turnaround strategy for the carmaker.) Meanwhile, the Treasury Department wound up with a 61% stake in post-bankruptcy GM.
Based on the GAO’s research, GM would need to have a market capitalization of $66.9 to recover its investment, significantly more than the $57 billion it was worth, at peak, in 2000. Chrysler, meanwhile, hit a public valuation of $37 billion, when it “merged” with Germany’s Daimler, in 1998. But the GAO said it would need a market valuation of $54.8 billion for Treasury to get its money back now.
Government officials have said they may begin the sell-off of their GM stake within about a year, though they have declined to provide a specific timeline. Most likely, that would involve a new Initial Public Offering, or IPO. With Chrysler, the government is expected to seek a private sale of its holdings.
Despite the GAO’s skepticism, the Obama Administration has said, on numerous occasions, that it believes the bulk of the aid package will eventually be recovered. A GM spokesman told the Associated Press there is “an excellent chance” of that happening “if we get our job done.”