CONGRESSIONAL OVERSIGHT PANEL 

JANUARY OVERSIGHT REPORT * 

AN UPDATE ON TARP SUPPORT FOR 

THE DOMESTIC AUTOMOTIVE INDUSTRY 

JANUARY 13, 2011.—Ordered to be printed 

* Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic 

Stabilization Act of 2008, Pub. L. No. 110–343 


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CONGRESSIONAL OVERSIGHT PANEL JANUARY OVERSIGHT REPORT 


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1 

63–381 2011

CONGRESSIONAL OVERSIGHT PANEL 

JANUARY OVERSIGHT REPORT * 

AN UPDATE ON TARP SUPPORT FOR 

THE DOMESTIC AUTOMOTIVE INDUSTRY 

JANUARY 13, 2011.—Ordered to be printed 

* Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic 

Stabilization Act of 2008, Pub. L. No. 110–343 


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(II) 

CONGRESSIONAL OVERSIGHT PANEL 

PANEL MEMBERS

SEN. TED KAUFMAN, Chairman 

RICHARD H. NEIMAN

DAMON SILVERS

J. MARK MCWATTERS

KENNETH TROSKE


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(III) 

C O N T E N T S 

Page 

Executive Summary ................................................................................................. 1 

Section One: 

A. Introduction .................................................................................................. 4 

B. Overview of Government Intervention ....................................................... 5 

1. Summary of Government Intervention in Auto Manufacturing and 

Financing Industries ............................................................................. 5 

C. Current State of the Domestic Automotive Industry ................................ 15 

1. Capacity Reductions .............................................................................. 15 

2. Lower Labor Costs ................................................................................ 16 

3. Resiliency in Market Share .................................................................. 16 

4. Pricing .................................................................................................... 17 

5. Outlook ................................................................................................... 18 

D. General Motors ............................................................................................ 20 

1. Context ................................................................................................... 20 

2. More Recent Developments .................................................................. 23 

3. Outlook ................................................................................................... 29 

4. Treasury’s Exit Strategy ....................................................................... 33 

E. Chrysler ........................................................................................................ 38 

1. Context ................................................................................................... 38 

2. Outlook ................................................................................................... 48 

3. Analysis of the Government’s Exit Strategy Based on Likely Repayment Scenarios ................................................................................. 53 

F. GMAC/Ally Financial ................................................................................... 57 

1. Context ................................................................................................... 57 

2. Outlook ................................................................................................... 66 

3. Analysis of Intended Exit Strategy ...................................................... 74 

G. Auto Supplier Support Program ................................................................. 85 

1. Background ............................................................................................ 85 

2. TARP Intervention ................................................................................ 86 

3. Current Status of Auto Supplier Industry .......................................... 86 

H. Analysis of Treasury’s Interaction with all Three Companies in Light 

of Government’s Objectives .......................................................................... 87 

1. Summary of Principles upon which Government Says it Will Conduct its Involvement in Private Companies ........................................ 87 

2. Has Treasury Abided by its own Principles? ...................................... 88 

3. Has Treasury Used its Limited Authority Effectively? ...................... 91 

4. Was Treasury Right in Establishing These Guidelines for Itself? .... 94 

I. Conclusions and Recommendations ............................................................. 95 

Section Two: Additional Views 

A. J. Mark McWatters and Professor Kenneth R. Troske ............................. 101 

Section Three: TARP Updates Since Last Report ................................................. 106 

Section Four: Oversight Activities .......................................................................... 133 

Section Five: About the Congressional Oversight Panel ...................................... 134 


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* The Panel adopted this report with a 4–0 vote on January 12, 2011. 

JANUARY OVERSIGHT REPORT 

JANUARY 13, 2011.—Ordered to be printed 

EXECUTIVE SUMMARY * 

Since the Panel’s last comprehensive review of TARP support for 

the domestic automotive industry in September 2009, Treasury’s 

automotive investments have, in financial terms, starkly improved. 

As of September 2009, the Congressional Budget Office (CBO) estimated that taxpayers would lose $40 billion on their automotive investments. Today, CBO has reduced its loss estimate to $19 billion, 

and the three largest recipients of automotive bailout funds—General Motors (GM), Chrysler, and GMAC/Ally Financial—all appear 

to be on the path to financial stability. 

While it remains too early to tell whether Treasury’s intervention 

in and reshaping of the U.S. automotive industry will prove to be 

a success, there can be no question that the government’s ambitious actions have had a major impact and appear to be on a promising course. Even so, the companies that received automotive bailout funds continue to face uncertain futures, taxpayers remain at 

financial risk, concerns remain about the transparency and accountability of Treasury’s efforts, and moral hazard lingers as a 

long-run threat to the automotive industry and the broader economy. 

Treasury is currently unwinding its stakes in GM, Chrysler, and 

GMAC/Ally Financial. Of those companies, GM is furthest along in 

the process of repaying taxpayers. It conducted an initial public offering (IPO) on November 18, 2010, and Treasury used the occasion 

to sell a portion of its GM holdings for $13.5 billion. This sale represents a major recovery of taxpayer funds, but it is important to 

note that Treasury received a price of $33.00 per share—well below 

the $44.59 needed to be on track to recover fully taxpayers’ money. 


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By selling stock for less than this break-even price, Treasury essentially ‘‘locked in’’ a loss of billions of dollars and thus greatly reduced the likelihood that taxpayers will ever be repaid in full. 

Treasury has explained its decision to sell at a loss by saying 

that it wished to unwind government ownership of the automobile 

industry as quickly as possible. This justification may very well be 

reasonable, but it is difficult to evaluate. Because Treasury has 

cited different, conflicting goals for its automotive interventions at 

different times—saying, for example, that it wished to save American jobs, to produce the best possible return to taxpayers, or to return the company to private ownership as rapidly as possible—it 

is difficult for the Panel or any outside observer to judge whether 

Treasury’s results in fact qualify as successful. 

The other major automotive manufacturer to receive government 

assistance, Chrysler, remains a private company. Because Treasury 

has already absorbed $3.5 billion in losses on loans made to the 

pre-bankruptcy Chrysler, the prospect for a full recovery of taxpayers’ money depends upon Treasury’s ability to sell its ownership 

of Chrysler at a profit. However, as Treasury owns only 10 percent 

of the company’s stock, it has very limited ability to influence the 

timing of an eventual public offering. The remaining 90 percent of 

Chrysler was parceled out to several other parties, including the 

Italian automotive manufacturer Fiat, through the bankruptcy 

process—but while this approach may have saved Chrysler from 

liquidation, the result is that Treasury has little authority to act 

in taxpayers’ interests. Another source of concern is Treasury’s 

hasty unwinding of its position in Chrysler Financial, in which taxpayer returns appear to have been sacrificed in favor of an unnecessarily accelerated exit, further compounded by apparently questionable due diligence. 

The final major recipient of automotive-related aid, GMAC/Ally 

Financial, represents a curious case. GMAC/Ally Financial is a financial company, not a manufacturer; it operates in many fields 

entirely unrelated to the automotive industry. Traditionally, however, the company has provided the bulk of financing to GM car 

dealerships, as well as significant financing to individual purchasers of GM vehicles. As such, Treasury saw the survival of 

GMAC/Ally Financial as critical to its broader automotive rescue. 

Since the Panel’s report on GMAC/Ally Financial in March 2010, 

the company has experienced three consecutive quarters of profits 

and has reduced the risk in its mortgage portfolio. Even so, taxpayers likely will not begin to recover their investment until 

GMAC/Ally Financial conducts an IPO. Treasury has had significant leverage over the IPO’s timing due to its preferred stock holdings, but regrettably, Treasury has been inconsistent in acknowledging this leverage. Treasury’s reluctance to recognize its own influence may represent an effort to claim a coherent ‘‘hands off’’ 

shareholder approach, despite the unique circumstances that apply 

to GMAC/Ally Financial. 

The ‘‘hands off’’ approach may in itself raise questions. Treasury 

has asserted that, even if one of the automotive companies had announced an entirely unrealistic business plan, Treasury would not 

have intervened. In more practical terms, Treasury declined to 

block GM’s purchase of AmeriCredit, a subprime financing company, even though AmeriCredit may ultimately compete against 


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GMAC/Ally Financial and thus damage that company’s ability to 

repay taxpayers. Although Treasury’s ‘‘hands off’’ approach may 

have reassured market participants about the limited scope of government intervention, it may also have forced Treasury to leave 

unexplored options that would have benefited the public. 

Treasury is now on course to recover the majority of its automotive investments within the next few years, but the impact of its 

actions will reverberate for much longer. Treasury’s rescue suggested that any sufficiently large American corporation—even if it 

is not a bank—may be considered ‘‘too big to fail,’’ creating a risk 

that moral hazard will infect areas of the economy far beyond the 

financial system. Further, the fact that the government helped absorb the consequences of GM’s and Chrysler’s failures has put more 

competently managed automotive companies at a disadvantage. For 

these reasons, the effects of Treasury’s intervention will linger long 

after taxpayers have sold their last share of stock in the automotive industry. 


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1 Effective May 15, 2010, GMAC Financial Services changed its name to Ally Financial Inc. 

Except where the distinction is otherwise significant, this report refers to this company as 

‘‘GMAC/Ally Financial.’’ 

SECTION ONE: 

A. Introduction 

In late 2008 and early 2009, the federal government undertook 

the unprecedented rescue of two of the three major U.S.-based 

automobile manufacturers, as well as a major automotive financing 

company. These interventions were accomplished using resources 

from the Troubled Asset Relief Program (TARP), a program that 

Congress created with passage of the Emergency Economic Stabilization Act (EESA) in October 2008 and which was aimed primarily at preventing economic collapse by restoring stability in the 

financial sector. This month the Congressional Oversight Panel 

looks at what the TARP has accomplished in the automobile sector 

and the prospects for recovering the taxpayer’s investments in the 

three rescued firms: General Motors, Chrysler, and GMAC/Ally Financial.1

The Panel first reviewed the actions of Treasury in rescuing GM 

and Chrysler in a September 2009 report. That report asked 

whether the actions taken to that point to rescue GM and Chrysler 

served merely to forestall a decision ultimately to liquidate those 

companies or to intervene with still more government assistance to 

make them viable. It remains too early to render a conclusive verdict on that question. But the events of the intervening 16 months 

allow a tentative judgment: GM and Chrysler are both more viable 

firms than they were in December 2008 with GM on a credible 

path to recovery but Chrysler’s outlook more uncertain. Likewise, 

the degree to which Treasury will be successful in recovering the 

taxpayer’s investment in these firms has become more apparent for 

GM than for Chrysler. The intervening time since the Panel’s last 

report on the GM and Chrysler rescues has also allowed for some 

greater understanding of how Treasury would behave as an investor in both firms. What remains uncertain is whether the improvement in both companies is directly attributable to Treasury’s intervention or to the more general improvement of the economy. In addition, there remains a great deal of uncertainty about the long-run 

impact of the government’s significant intervention in the operations of these private firms. 

In its March 2010 report, the Panel examined the actions of 

Treasury, closely related to its investments in GM and Chrysler, in 

supporting the auto financing firm GMAC/Ally Financial. That report noted that there were lingering unresolved issues related to 

GMAC/Ally Financial’s emerging business strategy. In the 10 

months since that report was issued, the firm’s operating performance has improved considerably, but Treasury’s exit strategy remains unclear. 

The use of TARP resources to prevent the collapse of two of the 

three domestic automakers was and continues to be controversial. 

Policymakers confronting this situation in November and December 

2008 had several courses of action, ranging from doing nothing to 

full adoption of the rescue plans proposed by the companies. It is 


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possible that private sector financial firms, such as private equity 

funds or hedge funds, may have stepped up to provide financing for 

some of GM’s or Chrysler’s more desirable assets at a later date. 

However, it is unclear to what extent broad-based private sector 

emergency funding to buy both firms in their entirety was a feasible option in the midst of the credit market crisis during the fall 

of 2008. It was the judgment of the Bush Administration, a judgment confirmed by many knowledgeable market participants at the 

time, that such a private sector intervention was unlikely. Hence, 

the Bush Administration chose a middle-of-the-road option, providing the firms with TARP-financed loans sufficient to tide them 

over for a few months but leaving it to a new administration to 

make its own assessments as to the long-term viability of GM and 

Chrysler and ultimately to choose to put the firms through expedited bankruptcy proceedings. 

In contrast to its interventions in the financial sector, where assistance was provided to banks without requiring sweeping changes 

in their management and operations, government intervention in 

the auto sector has been noteworthy for the major restructuring 

that was required as a condition for receiving government financing. While it remains too early to tell whether Treasury’s intervention in and reshaping of the U.S. auto industry will prove to be a 

success, there can be no question that the government’s ambitious 

actions have had a major impact. Completion of an IPO of GM 

stock is an especially significant milestone that serves to highlight 

the timeliness of an updated assessment of the TARP’s performance in rescuing the U.S. auto and auto financing industries. These 

favorable events, however, must be thoughtfully balanced against 

the moral hazard risks created by the taxpayer’s bailout of the 

three institutions and the ongoing implicit guarantee of the government. By bailing out GM, Chrysler, and GMAC/Ally Financial, the 

government sent a powerful message to the marketplace—some institutions will be protected at all cost, while others must prosper 

or fail based upon their own business judgment and acumen. We 

regret that Treasury has focused solely on the apparent success of 

the GM IPO in assessing the rescues of the three institutions to the 

distinct exclusion of the moral hazard risks arising from the bailouts. 

B. Overview of Government Intervention 

1. Summary of Government Intervention in Auto Manufacturing and Financing Industries 

a. Condition of the Domestic Auto Industry in 2008 

Even prior to the onset of the financial crisis, the domestic automotive industry was facing severe challenges and strains. Not only 

had foreign competitors steadily increased their market share, and 

rising fuel prices softened demand, but Chrysler and GM faced additional challenges posed by legacy costs and a series of poor strategic decisions. 

With the onset of the financial crisis, the challenges facing the 

auto industry—which now also included tightening credit markets, 

declining consumer confidence, decreased demand, and rising unVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00011 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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2For a discussion of the factors leading up to the government’s decision to support the automotive industry, see Congressional Oversight Panel, September Oversight Report: The Use of 

TARP Funds in the Support and Reorganization of the Domestic Automotive Industry, at 7–23 

(Sept. 9, 2009) (online at cop.senate.gov/documents/cop-090909-report.pdf) (hereinafter ‘‘September 2009 Oversight Report’’). 3 House Judiciary, Subcommittee on Administrative Law, Written Testimony of Ron Bloom, 

senior advisor, U.S. Department of the Treasury, Ramifications of Automotive Industry Bankruptcies, Part II, at 1 (July 21, 2009) (online at judiciary.house.gov/hearings/pdf/ 

Bloom090721.pdf). 4GMAC/Ally Financial and Chrysler Financial were spun off from their parents in 2006 and 

2007, respectively, but their enduring operational and economic interdependence is illustrated 

by the largely stable share of GM dealer financing provided by GMAC/Ally Financial and Chrysler dealer financing provided by Chrysler Financial (until GMAC/Ally Financial took over Chrysler Financial’s floorplan business in May 2009). 

Relying on outside industry estimates, Treasury stated that the impact of letting GMAC/Ally 

Financial and Chrysler Financial fail (together with credit conditions at the time) would likely 

have been a further immediate decline of 1.5 to 2.5 million domestic automobile sales, primarily 

because of these companies’ roles in providing floorplan financing to GM and Chrysler dealers. 

Treasury believes that such a decline in sales would, in turn, have immediately threatened the 

economic viability of GM and Chrysler. Treasury conversations with Panel staff (Feb. 2, 2010); 

Congressional Oversight Panel, Joint Written Testimony of Ron Bloom, senior advisor to the 

Secretary of the Treasury, and Jim Millstein, chief restructuring officer, U.S. Department of the 

Treasury, COP Hearing on GMAC Financial Services, at 3 (Feb. 25, 2010) (online at 

cop.senate.gov/documents/testimony-022510-treasury.pdf). 5Senate Committee on Banking, Housing and Urban Affairs, Written Testimony of Robert 

Nardelli, chairman and chief executive officer, Chrysler LLC, The State of the Domestic Automobile Industry, Part II (Dec. 4, 2008) (online at banking.senate.gov/public/ 

index.cfm?FuseAction=Files.View&FileStore_id=c41857b2-7253-4253-95e3-5cfd7ea81393). 6Debtor-in-possession financing is a loan made to a firm in bankruptcy to allow it to continue 

operating. The DIP loan is senior to the other claims on the firm in bankruptcy. 

employment—became acute.2 The tightened credit market was especially significant not only because it impacted the automakers’ 

access to debt market/bank financing, but also because 90 percent 

of consumers finance automobile purchases through loans, either 

directly from the manufacturers’ financing arms or through thirdparty financial institutions, all of which experienced increased difficulty in late 2008 in raising capital to finance such loans.3 The 

particularly weak condition of Chrysler Financial and GMAC/Ally 

Financial exacerbated the plummeting sales at GM and Chrysler 

as the credit markets seized up.4 Ford did not need government assistance in large part because it conducted a massive refinancing 

in 2006, which provided the company with a credit facility that it 

could draw down as needed as the credit markets tightened considerably for other auto makers. 

b. Rescues of Chrysler and GM 

By the beginning of December 2008, GM and Chrysler could no 

longer secure the credit they needed to conduct their day-to-day operations.5 The CEOs of Chrysler and GM appeared before Congress 

and appealed for government assistance to help them remain in 

business, but they were unable to muster sufficient congressional 

support to get a rescue bill through the Senate. Unless they could 

raise billions of dollars in new financing from private investors, 

they faced bankruptcy and probable liquidation. 

Typically, when a firm reaches a financial crisis as severe as the 

ones facing GM and Chrysler in the fall of 2008, the firm files for 

bankruptcy in federal court. This invokes a process where there are 

two possible courses of action: either the firm is salvaged but reorganized using interim debtor in possession (DIP) financing, or the 

firm is liquidated.6 But the circumstances in the global credit markets in November and December 2008 were unlike any the financial markets had seen in decades. U.S. domestic credit markets 


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7 International Monetary Fund, Global Financial Stability Report: Responding to the Financial 

Crisis and Measuring Systemic Risk, at 8 (Apr. 2009) (online at www.imf.org/External/Pubs/FT/ 

GFSR/2009/01/pdf/text.pdf). 8 As of June 30, 2007, the Bank of China Limited, a state-owned commercial bank, held $8.97 

billion of U.S. subprime ABS. By the end of the third quarter 2008, this amount dropped to 

$3.3 billion. Bank of China Limited, Interim Report 2007, at 23 (online at www.boc.cn/en/ 

invester/ir3/200812/P020081212710228274350.pdf) (accessed Jan. 11, 2011); Bank of China Limited, Report for the Third Quarter ended 30 September 2008, at 9 (online at www.boc.cn/en/ 

invester/ir3/200812/P020081212712640132355.pdf) (accessed Jan. 11, 2011). 9 Citigroup, Inc., Press Release: Citi to Sell $7.5 Billion of Equity Units to Abu Dhabi Investment Authority (Nov. 26, 2007) (online at www.citigroup.com/citi/press/2007/071126j.htm). 10Data accessed through Bloomberg Data Service (Jan. 11, 2011). 11Then-Secretary Paulson did not use the name ‘‘Automotive Industry Financing Plan’’ at the 

time of the announcement. See generally U.S. Department of the Treasury, Secretary Paulson 

Statement on Stabilizing the Automotive Industry (Dec. 19, 2008) (online at 

www.financialstability.gov/latest/hp1332.html) (hereinafter ‘‘Secretary Paulson Statement on 

Stabilizing the Automotive Industry’’). Nonetheless, the investments to GM and Chrysler were 

made under this program. See generally U.S. Department of the Treasury, Troubled Asset Relief 

Program Transactions Report for Period Ending February 1, 2010, at 15 (Feb. 3, 2010) (online 

at www.financialstability.gov/docs/transaction-reports/2-3- 

10%20Transactions%20Report%20as%20of%202-1-10.pdf). 12See George W. Bush White House Archives, Fact Sheet: Financing Assistance to Facilitate 

the Restructuring of Auto Manufacturers to Attain Financial Viability (Dec. 19, 2008) (online at 

georgewbush-whitehouse.archives.gov/news/releases/2008/12/20081219-6.html) (hereinafter 

‘‘George W. Bush White House Archives Fact Sheet’’). 13Panel conversations with Edward Lazear, Professor of Economics, Stanford University, and 

Chairman of the President’s Council of Economic Advisors, 2006–2009 (Jan. 4, 2011). 

were frozen in the wake of the Lehman bankruptcy, and international sources of funding were extremely limited. Cross-border 

lending was decreasing due to a domestic bias in lending, concerns 

over cross-currency and foreign exchange swap markets, and higher regulatory capital charges.7 In September 2008, China had already reduced its holdings of U.S. subprime mortgage-backed securities by approximately $6 billion.8 Furthermore, several sovereign 

wealth funds that had stepped in to provide funding for U.S. firms 

were beginning to face losses on their investments. For example, 

the Abu Dhabi Investment Authority purchased $7.5 billion worth 

of Citigroup convertible bonds in early November 2007,9 only to see 

the share price plummet over the next 12 months.10 Consequently, 

according to Treasury, bankruptcy with reorganization of the two 

auto companies using private DIP financing did not appear to be 

an option by late fall 2008, leaving liquidation of the firms as the 

more likely course of action absent a government rescue. 

Facing the prospect of the collapse of GM and Chrysler, and with 

the option of a privately financed DIP bankruptcy proceeding foreclosed because of the extraordinary conditions in the credit markets, President George W. Bush on December 19, 2008 announced 

a government-funded rescue package for the automotive industry— 

the Automotive Industry Financing Program (AIFP). The rescue 

package broadened the allocation of TARP assistance to the domestic automotive industry.11

The White House estimated when it made the announcement 

that ‘‘the direct costs of American automakers failing and laying off 

their workers in the near term would result in a more than 1 percent reduction in real GDP growth and about 1.1 million workers 

losing their jobs, including workers for automotive suppliers and 

dealers.’’ 12 This estimate was produced by the Council of Economic 

Advisors and reflected the direct job losses at GM and Chrysler, 

their suppliers, and dealerships over the short term, i.e., roughly 

six months.13 Over the longer term, it is highly likely that the assets of these firms—particularly those related to the production of 


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14See U.S. Department of the Treasury, Indicative Summary of Terms for Secured Term Loan 

Facility [GM], at Appendix A (Dec. 19, 2008) (online at www.treasury.gov/press-center/press-releases/Documents/gm%20final%20term%20_%20appendix.pdf); U.S. Department of the Treasury, 

Indicative Summary of Terms for Secured Term Loan Facility [Chrysler], at Appendix A (Dec. 

19, 2008) (online at www.treasury.gov/press-center/press-releases/Documents/ 

chrysler%20final%20term%20_%20appendix.pdf). 15Secretary Paulson Statement on Stabilizing the Automotive Industry, supra note 11 (‘‘Treasury will make these loans using authority provided for the Troubled Asset Relief Program. 

While the purpose of this program and the enabling legislation is to stabilize our financial sector, the authority allows us to take this action. Absent Congressional action, no other authorities 

existed to stave off a disorderly bankruptcy of one or more auto companies’’); September 2009 

Oversight Report, supra note 2, at Section G.1. 16 House Committee on Financial Services, Testimony of Henry M. Paulson, Jr., secretary, 

U.S. Department of the Treasury, Transcript: Oversight of Implementation of the Emergency 

Economic Stabilization Act of 2008 and of Government Lending and Insurance Facilities: Impact 

on the Economy and Credit Availability, at 18–19 (Nov. 18, 2008) (online at 

frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_house_hearings&docid=f:46593.pdf) 

(stating that ‘‘[t]he TARP was aimed at the financial system. That is what the purpose is. That 

is what we talked about with the TARP . . . I don’t see [preventing the failure of one or more 

automotive companies] as the purpose of the TARP. Congress passed legislation that dealt with 

the financial system’s stability.’’). 17See George W. Bush White House Archives Fact Sheet, supra note 12. The loans also imposed conditions related to operations, expenditures, and reporting. 18The Administration concluded that Chrysler could not achieve viability as a stand-alone 

company and that it would have to develop a partnership with another automotive company or 

face bankruptcy. As for GM, the Administration concluded that the automaker’s financial viability plan relied on overly optimistic assumptions about the company and future economic developments. 19 In GM’s 363 sale, certain assets of Old GM (the automotive company that went into bankruptcy) were purchased by New GM (the company formed to buy the assets and financed by 

Treasury). As a part of this transaction, New GM also assumed certain liabilities of Old GM. 

Chrysler also engaged in a similar 363 sale. 

the more successful truck and minivan models—would have been 

brought back into production by competing firms such as Ford or 

the international auto manufacturers that build vehicles in the 

United States. Alternatively, the production capacity of the remaining firms might have been expanded to supply additional vehicles 

and employ additional workers. Likewise, while there would have 

been adjustments in supplier relationships and dealer networks, 

these changes would have created partially offsetting new employment, as those firms sought to fill the void created by the exit from 

the marketplace of two large auto manufacturers. 

The AIFP called for an investment of $13.4 billion in GM and 

Chrysler by mid-January 2009 and additional funding for GM of up 

to $4.0 billion.14 In announcing the plan, then-Treasury Secretary 

Henry Paulson stated that EESA provided him with the authority 

to make the investment, even as he acknowledged that ‘‘the purpose of [the TARP] program and the enabling legislation is to stabilize our financial sector.’’ 15 This marked a reversal of the Administration’s previous stance that automakers were ineligible to receive TARP assistance.16

The terms of the loans required both Chrysler and GM to demonstrate to the government their ability to achieve financial viability, and both companies submitted their viability plans on February 17, 2009.17 The results of the Obama Administration’s review 

of those plans were announced on March 30, 2009.18 Both companies ultimately entered bankruptcy and, with the active involvement of the federal government, underwent radical restructurings 

through ‘‘363 sales’’ (conducted under Section 363(b) of the U.S. 

Bankruptcy Code), which allow a business to sell all or substantially all of its assets and leave only the remainder of the assets 

for distribution in a Chapter 11 plan.19 Following those 


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For a discussion of the details of the bankruptcy, see September 2009 Oversight Report, supra 

note 2, at 7–8. 20 As a result of the GM IPO on November 17, 2010, Treasury has reduced its ownership stake 

in GM to 33 percent. For further discussion concerning the government’s exit strategy for GM, 

see Section D.4, infra. 21 In order to unlock credit further, participating suppliers could also sell their receivables into 

the program (run through American automotive manufacturers that agreed to participate in the 

program) at a discount before maturity. The supplier would pay a small fee for the right to participate in the program. Although all domestic automotive manufacturers were eligible, only 

Chrysler and GM chose to participate. 22For further discussion concerning the relationship between GM and GMAC/Ally Financial 

and Chrysler and Chrysler Financial, see Congressional Oversight Panel, March Oversight Report: The Unique Treatment of GMAC Under the TARP, at 57–74 (Mar. 10, 2010) (online at 

cop.senate.gov/documents/cop-031110-report.pdf) (hereinafter ‘‘March 2010 Oversight Report’’). 23 Board of Governors of the Federal Reserve System, Order Approving Formation of Bank 

Holding Companies and Notice to Engage in Certain Nonbanking Activities, at 2 (Dec. 24, 2008) 

(online at www.federalreserve.gov/newsevents/press/orders/orders20081224a1.pdf). 

restructurings and after eventually providing a total of $63.1 billion in support, American taxpayers owned about 10 percent of 

what is now known as New Chrysler and 61 percent of New GM.20

c. Auto Suppliers and Warranties 

The TARP’s assistance to the automotive industry includes two 

additional initiatives. First, as a result of the downturn in the 

economy, automotive suppliers had great difficulty accessing credit. 

Consequently, on March 19, 2009, Treasury announced the Auto 

Supplier Support Program (ASSP), under which the government 

agreed to guarantee payment for products shipped by participating 

suppliers, even if the buyers went out of business.21 Through the ASSP, Treasury committed $1.0 billion to Chrysler and $2.5 billion 

to GM, though each company drew down smaller amounts. Those 

funds have since been repaid. Second, the automotive companies’ 

widely publicized vulnerability in late 2008 and early 2009 also 

raised concerns that consumers might not purchase Chrysler and 

GM automobiles for fear that the companies could not back their 

warranties. Accordingly, Treasury lent Chrysler $280 million and 

GM $361 million to backstop their new vehicle warranties. Both 

Chrysler and GM have since repaid those loans. 

d. Rescues of Chrysler Financial and GMAC/Ally Financial 

Treasury states that as it considered using TARP funds to rescue 

Chrysler and GM, it came to the conclusion that they could not 

survive without Chrysler Financial’s and GMAC/Ally Financial’s financial underpinning, respectively. Without access to ‘‘floorplan financing’’—that is, loans to auto dealers to allow them to purchase 

their inventories—many dealers would have been forced to close 

their doors. In addition, despite the relatively competitive retail 

lending environment, GM and Chrysler relied on GMAC/Ally Financial and Chrysler Financial, respectively, for a substantial portion of their consumer auto financing.22

GMAC/Ally Financial’s need for assistance in late 2008 arose 

from mortgage market investments that had incurred severe losses. 

On December 24, 2008, four days after President Bush announced 

the AIFP, the Federal Reserve Board approved GMAC/Ally Financial’s application to become a bank holding company (BHC).23 As 

part of this approval, the Federal Reserve required GMAC/Ally Financial to raise $7 billion in new equity. To satisfy this requireVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00015 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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24Treasury made a loan commitment to GM, which already owned a stake in GMAC/Ally Financial, of up to $1 billion in order to participate in the equity rights offering; however, only 

$884 million was drawn and used. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 18–19 (Dec. 30, 2010) 

(online at www.financialstability.gov/docs/transaction-reports/12-30- 

10%20Transactions%20Report%20as%20of%2012-30-10.pdf) (hereinafter ‘‘Treasury Transactions 

Report’’). 25The stress tests were designed to ensure that the nation’s largest financial institutions 

could withstand a sharp economic downturn. 26Of the $7.5 billion investment provided in May 2009, $4.0 billion was provided to GMAC/ 

Ally Financial related to its partial acquisition of Chrysler Financial in May 2009. Treasury explained that it began to orchestrate the transfer of most of Chrysler Financial’s business into 

GMAC/Ally Financial because it realized in the spring of 2009 that by July 2009, Chrysler Financial would be unable to meet its financing requirements. Treasury conversations with Panel 

staff (Feb. 2, 2010). 27Treasury Transactions Report, supra note 24, at 18–19. 28Treasury Transactions Report, supra note 24, at 18–19; Cerberus Capital Management, 

L.P., Company Profiles: Chrysler Holding LLC (online at webcache.googleusercontent.com/ 

search?q=cache:bcyLZouJF04J:www.cerberuscapital.com/profiles/chrysler.html+cerberus+chrysler+holdings&cd=4&hl=en&ct=clnk&gl=us) (accessed Jan. 1, 2011). 29Treasury Transactions Report, supra note 24, at 18–19. 30 U.S. Department of the Treasury, Chrysler Financial Parent Company Repays $1.9 billion 

in Settlement of Original Chrysler Loan (May 17, 2010) (online at www.financialstability.gov/latest/pr_05172010c.html). 

ment, Treasury provided GMAC/Ally Financial with $5 billion in 

emergency funding under the AIFP on December 29, 2008, and 

GMAC/Ally Financial made an equity rights offering to its existing 

shareholders for $2 billion.24

Subsequently, GMAC/Ally Financial was one of 19 firms included 

in the government’s ‘‘stress tests.’’ 25 When the stress tests revealed 

that GMAC/Ally Financial needed to increase its capital, funding 

that it was unable to raise in the markets, the government extended further investments of $7.5 billion in May 2009 and $3.8 

billion in December 2009.26 Treasury’s investment in GMAC/Ally 

Financial now consists of 73.8 percent of the company’s common 

stock, $2.7 billion in trust-preferred securities, and $5.9 billion in 

mandatory convertible preferred (MCP) shares. 

The assistance to Chrysler and Chrysler Financial was interwoven due to the common ownership of those two entities. On January 16, 2009, Treasury made a $1.5 billion loan directly to Chrysler Financial, which has since been repaid.27 On January 2, 2009, 

as part of its broader assistance to Chrysler, Treasury provided a 

$4.0 billion loan to Chrysler Holding, an entity owned by Cerberus 

Management.28 Both Chrysler and Chrysler Financial were subsidiaries of Chrysler Holding at the time. In connection with the 

loan to Chrysler Holding, Treasury was entitled to the first $1.375 

billion of proceeds from Chrysler Financial that would have flowed 

to Chrysler Holding and 40 percent of any additional proceeds that 

Chrysler Financial paid to Chrysler Holding after certain other distributions were made.29 As part of the bankruptcy process, $500 million of the $4.0 billion loan was assumed by New Chrysler, leaving Chrysler Holding with a $3.5 billion loan. 

On May 17, 2010, Treasury announced that it had settled with Chrysler Holding and extinguished the loan for $1.9 billion in consideration for the government’s 40 percent interest in Chrysler Financial, a settlement that it noted was above the valuation determined in an analysis by investment bank Keefe, Bruyette and 

Woods, but which would nevertheless result in a loss of $1.6 billion 

on the initial $3.5 billion loan.30 Seven months later, on December 

21, 2010, TD Bank Group announced that it had agreed to purVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00016 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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31Toronto-Dominion Bank, TD Bank Group to Acquire Chrysler Financial (Dec. 21, 2010) (online at mediaroom.tdbank.com/index.php?s=43&item=271). The $6.3 billion sale price included 

$400 million of goodwill. 32With GMAC/Ally Financial moving quickly into the business of providing Chrysler financing, Treasury announced in late 2009 that Chrysler Financial had begun to wind down the minimal portion of its operations not assumed by GMAC/Ally Financial and aimed to complete the 

process by December 31, 2011. See Letter from Kenneth R. Feinberg, special master for TARP 

executive compensation, to Tracy Hackman, vice president, general counsel and secretary, 

Chrysler Financial, Proposed Compensation Payments and Structures for Senior Executive Officers and Most Highly Compensated Employees, Annex A, at A5 (Oct. 22, 2009) (online at 

www.financialstability.gov/docs/ 

20091022%20Chrysler%20Financial%202009%20Top%2025%20Determination.pdf). 33Toronto-Dominion Bank, Acquisition of Chrysler Financial by Toronto-Dominion Bank (Dec. 

21, 2010) (hereinafter ‘‘Acquisition of Chrysler Financial by Toronto-Dominion Bank’’). Transcript provided by SNL Financial. 

During a recent interview, Chrysler Financial CEO Tom Gilman said the company was in liquidation mode and winding down its loan portfolio for most of 2010. The company currently has 

1,850 employees after eliminating over 50 percent of its staff (about 2,000 positions) during the 

last two years, and its loan portfolio balance declined from $50 billion to under $10 billion as 

it generally stopped underwriting new loans over the past year. David Shepardson, TD Bank 

to buy Chrysler Financial, Detroit News (Dec. 21, 2010) (online at detnews.com/article/20101221/ 

AUTO01/12210375). 

chase Chrysler Financial from Cerberus Management for approximately $6.3 billion.31 Using this sale price, Treasury’s right to 40 

percent of Chrysler Financial’s equity would have been worth $2.5 

billion, representing a $600 million difference from the $1.9 billion 

Treasury settled for in May 2010. 

The rush to exit Chrysler Financial—compounded by incomplete 

due diligence—may have resulted in an unnecessarily subpar return for taxpayers, preventing Treasury from recouping more of its 

prior $1.6 billion loss. Presumably, Treasury’s stance as a reluctant 

shareholder underscored the rationale for an expedited exit in this 

investment.32 However, such an approach was still in marked contrast to Treasury’s longer-term (and generally successful) investment mentality in other instances (for example, GMAC/Ally Financial, Chrysler). Further, Treasury apparently conducted limited 

valuation due diligence, focusing on the merits of the offer from 

Cerberus in the context of an expected wind-down of the Chrysler 

Financial platform. Cerberus had operated Chrysler Financial in 

run-off mode, and Treasury had valued it as such in the context of 

the offer from Cerberus. While Treasury relied primarily on a valuation premised on the wind-down assumption, Treasury also states 

that they considered other inputs to evaluate fully the offer from 

Cerberus. However, aside from providing an accompanying netpresent-value analysis in response to subsequent Panel requests, 

Treasury was unable to provide any documentation to support this 

claim of a multi-pronged valuation exercise that encompassed a potential bid from a strategic buyer. 

After this settlement, Treasury no longer had any interest in or 

claim on Chrysler Financial, leaving Cerberus as the sole owner of 

the company. Cerberus, recognizing the inherent value of the 

Chrysler Financial platform to potential strategic bidders (i.e., 

other financial institutions seeking a foothold in the auto lending 

market), sought to cash in on the value of the franchise. Thomas 

Gilman, CEO of Chrysler Financial, explained that, ‘‘During this 

time our origination engine was idling, but we knew we had a valuable franchise and so we continue[d] to make strategic investments 

in the core competencies of our operations in technology, process 

and talent.’’ 33


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34 Acquisition of Chrysler Financial by Toronto-Dominion Bank, supra note 33. Transcript provided by SNL Financial. (Thomas Gilman, Chrysler Financial CEO, said ‘‘[W]e paid all debt and 

we paid all the U.S. government TARP funds that we received. Obviously, any restrictions related to TARP have now been lifted.’’). Restriction associated with the loan included the limitation of new business lines and major investments. U.S. Department of the Treasury, Loan and 

Security Agreement By and Between The Borrower Listed on Appendix A as Borrower and The 

United States Department of the Treasury as Lender, at 56 (Dec. 31, 2008) (online at 

www.financialstability.gov/docs/AIFP/Chrysler%20LSA%20as%20of%2005-26-10.pdf) (‘‘No Loan 

Party will engage to any substantial extent in any line or lines of business activity other than 

the businesses generally carried on by the Loan Parties as of the Effective Date or businesses 

reasonably related thereto.’’); Id. at 58 (‘‘No Loan Party intends to make any Investment, except 

Permitted Investments. If any Loan Party shall make a Permitted Investment not in the ordinary course of business in an amount greater than $100,000,000, such Loan Party shall comply 

with provisions’’). 35 Acquisition of Chrysler Financial by Toronto-Dominion Bank, supra note 33. Transcript provided by SNL Financial. 36 Congressional Oversight Panel, Written Testimony of Ron Bloom, senior advisor, U.S. Department of the Treasury, COP Field Hearing on the Auto Industry (July 27, 2009) (online at 

cop.senate.gov/documents/testimony-072709-bloom.pdf); The White House, Fact Sheet: Obama 

Administration Auto Restructuring Initiative General Motors Restructuring (June 30, 2009) (online at financialstability.gov/latest/05312009_gm-factsheet.html) (hereinafter ‘‘White House Fact 

Sheet on General Motors Restructuring’’). 37 As with the automotive companies, some of AIG’s management has been replaced and the 

company has undergone a restructuring that has resulted in two of its profitable foreign insurance divisions being spun-off and its financial products division significantly cut back. However, 

the Federal Reserve and Treasury chose not to use the Bankruptcy Code to restructure AIG. 

Following Treasury’s sale, Chrysler Financial benefited from the 

lifting of restrictions associated with the TARP assistance provided 

to Chrysler Holding, as well as capital investments Cerberus made 

in order to enhance further the strategic options for company going 

forward.34 As Mr. Gilman explained following the acquisition by 

TD Bank, ‘‘the ultimate solution for Chrysler Financial is to find 

a strong partner that could provide stable and long-term financing 

to support the needs of our customers and our dealers.’’ 35

e. Differences between Automotive Industry and Financial Institution Interventions 

The Administration has articulated a set of uniform principles to 

govern its ownership interests in financial and automotive companies. One such set of principles is that in ‘‘exceptional cases’’ where 

the government feels it is necessary to respond to a company’s request for substantial assistance, Treasury will reserve the right to 

establish upfront conditions as necessary including requirements 

for new viability plans as well as changes to boards of directors and 

management.36 Treasury determined that seven institutions—AIG, 

Citigroup, Bank of America, GM, GMAC/Ally Financial, Chrysler, 

and Chrysler Financial—should be deemed ‘‘exceptional assistance’’ 

recipients. 

In practice, however, there were clear differences between the 

treatment of banks and the automobile manufacturers that received TARP assistance, and even among those considered to be 

‘‘exceptional cases.’’ Both Chrysler and GM faced government-mandated restructurings. In comparison, Treasury has generally not 

forced TARP recipient financial institutions to reorganize, nor, with 

the exception of AIG, has it changed their boards and managements.37 Treasury’s assistance to Bank of America and Citigroup— 

two ‘‘exceptional assistance’’ recipients—was not conditioned on restructuring or management changes. Even in the case of GMAC/ 

Ally Financial—a financial institution that, like GM and Chrysler, 


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38This figure is composed of the $81.3 billion in total assistance provided to the automotive 

companies less the $26.4 billion in repayments and less the $3.5 billion in losses associated with 

the AIFP. Treasury Transactions Report, supra note 24, at 18–19. 

was assisted as part of the TARP’s Auto Industry Financing Program—Treasury chose not to put the firm through bankruptcy. 

Moreover, while Treasury has not generally exercised a significant role in restructuring the management of most of the financial 

institutions that received TARP capital investments, it has done so 

with the largest and most distressed TARP recipients, and this is 

particularly true of those assisted under the AIFP—GM, GMAC/ 

Ally Financial, and Chrysler. Of course, in the cases of GM, AIG, 

and GMAC/Ally Financial, Treasury’s ability to effect management 

changes may have been at least facilitated by its majority ownership positions. In contrast to the treatment of Chrysler and GM 

shareholders, who were wiped out, those with equity stakes in AIG, 

Citigroup, and GMAC/Ally Financial have seen their positions severely diluted by the government, but they have not been wiped 

out. Furthermore, unlike many creditors of the automotive companies, who were wiped out, companies with contractual ties to AIG, 

for instance those that owned AIG-originated credit default swap 

(CDS) contracts, were made whole. 

f. Current State of Government’s Investments 

There are currently $51.5 billion in TARP funds outstanding 

under the AIFP.38 Figure 1 shows the current state of TARP funds 

used to support the auto industry. In total, U.S. taxpayers spent 

$49.9 billion in support of GM, about $12.8 billion in support of 

Chrysler, and $17.2 billion in support of GMAC/Ally Financial. The 

assistance to automotive suppliers accounts for approximately $3.5 

billion of TARP commitments, bringing the gross TARP support for 

the U.S. domestic automotive industry to approximately $84.8 billion. 

FIGURE 1: AIFP ASSISTANCE BY COMPANY AS OF DECEMBER 30, 2010 

[Millions of dollars] 39

Total 

Invested 

% of 

Total 

AIFP 

Total Repaid 

% of 

Investment 

Repaid 

Total Lost 

Extinguished 

Assistance 

Currently 

Obligated 

GMAC/Ally Financial ........................................... $17,174 21 – 0 – 40 $17,174 

General Motors ................................................... 49,861 61 $(22,717) 46 – 27,144 

Chrysler Financial ............................................... 1,500 2 (1,500) 100 – – 

Chrysler ............................................................... 12,810 16 (2,180) 17 ($3,488) 7,142 

Total AIFP ................................................. $81,345 – ($26,397) – ($3,488) $51,459 

39 Treasury Transactions Report, supra note 24, at 18. 40 As of December 30, 2010, Treasury had converted $9.4 billion of its investment in GMAC/Ally Financial into common stock. For further information regarding these conversions, see Section F.2.b of this report. 

Figure 2 illustrates the proportion of TARP funds expended and 

repaid in support of the auto industry compared to the amounts 

used for other purposes. 


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41The ‘‘Foreclosure Prevention’’ category includes the Home Affordable Modification Program 

(HAMP), the Hardest Hit Fund, and the Federal Housing Administration (FHA) Short Refinance 

program. It should be noted that these programs were not designed to solicit repayment. The 

‘‘Other Stability programs’’ category includes the Term Asset-Backed Loan Facility (TALF), the 

Public-Private Investment Partnership (PPIP), and the Small Business Administration 7(a) Securities Purchase Program. 

FIGURE 2: TARP FUNDS REPAID AS A PORTION OF TOTAL EXPENDED BY PROGRAM 

TYPE 41

As shown above, a significant amount of the AIFP assistance remains outstanding, particularly in comparison to the bank recapitalizations conducted under the TARP. In addition, compared to the 

TARP bank recapitalization and other stability programs, it is generally taking Treasury a longer period of time to dispose of its 

AIFP investments. The longer disposition process is largely the result of the nature of Treasury’s investments in each program. 

While most of Treasury’s banking sector investments (with the exception of investments in Citigroup and a small number of other 

banks) were limited to purchases of senior preferred stock or subordinated debentures (the terms of which allowed the recipient the 

right to redeem at any time, subject to regulatory approval), Treasury’s AIFP investments are a combination of loans, preferred stock, 

and common stock. Since common stock interests in GM, Chrysler, 

and GMAC/Ally Financial now form the majority of Treasury’s remaining AIFP investments, the disposition of these ownership interests will depend on the condition of the equity capital markets, 

the state of the auto sector, and the broader economic outlook. As 

with the disposition of Treasury’s investment in insurance giant 

AIG, the complete disposition of Treasury’s AIFP investments could 

take place over several years. 

At this point, it is impossible to determine whether Treasury’s 

assistance through the AIFP will have a long-term financial cost or 

gain. The Panel examines this issue, as well as the context for government assistance and likely exit strategies for each company, in 

more depth below. 


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42For further discussion concerning the outlook for the auto industry, see Section C.5, infra. 

C. Current State of the Domestic Automotive Industry 

U.S. auto companies have significantly improved their operating 

performance over the past year, moving from losses to profits in recent quarters. Automakers restructured during the global recession 

by cutting brands, closing factories, and laying off workers, positioning themselves for higher profits once consumer demand increased. Since the automakers have recently demonstrated that 

they can generate profits at a much lower level of sales, the industry may be well positioned to exploit any increased demand.42 The 

industry’s improved efficiency has allowed automakers to become 

more flexible and better able to meet changing consumer demands, 

while still remaining profitable. Improved production procedures 

and lower inventory have resulted in fewer discounts on new car 

sales, improving the profitability on each car sold. Investor enthusiasm for GM’s IPO in November 2010 demonstrates a more favorable outlook for the auto companies since the restructurings of GM 

and Chrysler, in large part because of structural cost reductions, 

resulting in leaner and more efficient business models, and boosting optimism for the possibility of more sustainable profits over the 

long term. 

These fundamental changes across the industry are outlined 

below. Restructuring efforts at the individual companies are outlined in more detail in the corresponding GM, Chrysler, and 

GMAC/Ally Financial sections of this report. 

1. Capacity Reductions 

Restructuring during the economic downturn has resulted in increased factory and labor usage and reduced vehicle inventory. As 

Figure 3 below illustrates, the North American production capacity 

of the big three automakers steadily declined from 2001 to 2004, 

before declining more sharply in recent years. In comparison, the 

utilization rate, a metric that measures the degree to which companies exploit their existing production capacity, is projected to increase from a trough of 47 percent in 2009 to 80 percent in 2012. 

The reduction in production capacity, combined with a more efficient use of inputs, demonstrates that the nation’s largest three 

automakers have taken steps to align their size and production 

with a more subdued market backdrop. 


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43 Capacity is defined here as two 8-hour work shifts per day times the average number of 

work days (240) per year at the maximum possible facility line rate (vehicles produced per hour). 

Utilization is production divided by capacity. Data provided by CSM. 44For example, GM’s U.S. salaried headcount is currently 24,000, versus 30,000 in 2008 and 

34,000 in 2007 (down 20 percent and 29 percent, respectively). GM’s U.S. hourly workforce, 

which is almost completely made up of UAW members, is currently 46,000, down from 62,000 

in 2008 and 78,000 in 2007. (Deutsche Bank Investment Research). 45 In large part due to the shifting of healthcare costs to the UAW in the 2007 agreement, 

hourly labor costs within Chrysler, Ford, and GM have now declined to approximately $58 per 

hour, approaching the levels at U.S. plants operated by Japanese automakers and falling below 

historical levels of $65 per hour. Colin Langan, 10% Margins in the ‘‘New’’ US Auto Industry, 

UBS Investment Research, at 5 (Nov. 15, 2010) (hereinafter ‘‘UBS Investment Research Paper’’). 46 Id. at 1. UBS states that automakers ‘‘are now profitable at very low levels of utilization, 

which bodes well for operating leverage as sales demand continues to recover.’’ 

FIGURE 3: NORTH AMERICAN CAPACITY OF BIG 3 AUTOMAKERS COMPARED TO CAPACITY 

UTILIZATION RATE 43

2. Lower Labor Costs 

Industry-wide labor costs are also substantially lower, primarily 

due to the following: 

• A reduction in the number of salaried employees; 44

• Salary declines resulting from the hiring of Tier 2 workers, 

who are new hires with average wages of $33 per hour. Tier 

1 employees, who have been employed for longer, have average 

wages of $58 per hour; 

• A shift in responsibility for employee health-care costs as a result of a 2007 agreement with the UAW; 45 and 

• Streamlined job classifications, which help improve assembly 

line productivity. 

Overall, the cost bases at Chrysler, Ford, and GM are some 35 

percent lower in 2010 than they were in 2005 and 20 percent lower 

than they were in 2007.46

3. Resiliency in Market Share 

Since the 1980s, American automakers have been losing ground 

in their home market, but they started to reverse that trend in 

2010, at the expense of their Japanese rivals. This reflects gains 

in the U.S. auto market by Ford and a retreat by Toyota after a 

series of Toyota recalls over the past year. After shedding or elimiVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00022 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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47General Motors Company, Q3 2010 Results, at 6 (Nov. 10, 2010) (online at media.gm.com/ 

content/dam/Media/gmcom/investor/2010/Q3-Chart-Set.pdf) (hereinafter ‘‘GM Q3 2010 Results’’). 48Data provided by Wards Auto. 

nating four brands as part of its restructuring, GM’s share has fallen from 19.7 percent in 2009 to 18.3 percent at present,47 while 

Chrysler’s share has slightly improved from 9.0 percent in 2009 to 

approximately 9.5 percent. Chrysler’s improvement in market 

share has been aided by a shift to lower-margin sales of ‘‘fleet’’ vehicles to rental car agencies and other commercial buyers. 

FIGURE 4: BIG 3 TOTAL U.S. MARKET SHARE, 1980 TO 2010 48

4. Pricing 

Finally, the industry has also benefited from a reduction in sales 

promotions (as its inventory management has improved, in line 

with a more sustainable utilization rate), which has resulted in a 

steadily higher average transaction price per vehicle sold. Figure 5 

below shows the average transaction price per vehicle as a percentage of the Manufacturer Suggested Retail Price (MSRP). This 

measure reached a trough of 75 percent in August of 2009 as the 

industry struggled to unload unsold inventory, but has since increased to 84 percent in October 2010, eclipsing pre-crisis levels. 


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49Data compiled by CNW Research. MSRP is defined as Manufacturer Suggested Retail Price. 

The MSRP is the average sticker price of vehicles sold; Transaction Price excludes taxes, fees, 

and aftermarket products. 50 Bureau of Economic Analysis, Supplemental Data: Auto Vehicles (Instrument: Light Total— 

seasonally adjusted at annual rates (Millions)) (online at www.bea.gov/national/xls/gap_hist.xls) 

(accessed Jan. 11, 2011). Standard & Poor’s views on the extent of the sales rebound are conservative given the sluggish economic recovery, but it expects sales to improve again in 2011 

to approximately 12.8 million units. Despite the improvement, this figure is still below the 2008 

sales numbers. PricewaterhouseCoopers (PwC), while noting concerns about the ‘‘waning 

strength’’ of an economic recovery and ‘‘dimming prospects for marked improvement in 2011,’’ 

states that North America’s light vehicle landscape has continued to produce ‘‘convincing signs 

of near-term stability in terms of sales and assembly.’’ PricewaterhouseCoopers, North America 

Analyst Briefing (Nov. 2010). For its part, Goldman Sachs is forecasting 2011 and 2012 sales 

at 13 million and 14 million, respectively, as it believes that additional pent-up demand ‘‘will 

help drive a steeper recovery in auto sales as some of these macro concerns abate.’’ The Goldman Sachs Group, Inc., Americas: Automobiles: See Upside to 3Q Consensus Post Our Volume 

Driven Est. Revisions (Oct. 19, 2010) (hereinafter ‘‘Goldman Sachs Estimate Revisions’’). In late 

October, Goldman Sachs also projected a 2013 SAAR estimate of 15 million. It is important to 

underscore, however, that these levels are still well below historic ‘‘normalized’’ sales. 

FIGURE 5: TRANSACTION PRICE AS A PERCENTAGE OF MSRP 49

5. Outlook 

Putting all of the aforementioned factors together, the industry’s 

financial outlook has improved considerably over the past two 

years. Despite a historically weak backdrop of U.S. sales, the industry is now reporting strong profits. The combination of greatly 

reduced capacity, generally stable market share, and improved 

pricing has more than offset persistently weak (but improving) demand. Thus, many industry observers believe that an improvement 

in the economy will result in a disproportionate increase in profitability, as the industry will be able to increase production without 

incurring meaningful new investment costs. Meanwhile, sales outside the United States—particularly in the emerging markets of 

Brazil, Russia, India, and China—are pacing an improving longterm sales outlook, as these markets overtake the United States as 

the key driver of incremental industry demand. 

The auto industry’s average U.S. seasonally adjusted annual rate 

(SAAR) for the year-to-date period through the end of December 

2010 is 12.5 million sales. This compares to 11.1 million in the corresponding year-ago period.50 However, this level is still 29 percent 

below the average SAAR of 16.3 million in the 10 years preceding 

2006. Nonetheless, the industry’s lower cost base has made it posVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00024 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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51Standard & Poor’s anticipates that recovering light vehicle sales and inventory rebuilding 

in the United States will boost production volumes by more than 10 percent in 2010. Standard 

& Poor’s, Industry Report Card: Busy Production Lines Are Fueling Global Automakers’ Operating Profits And Credit Quality (Oct. 4, 2010). 52 An average of five analyst forecasts for SAAR improves from 11.6 million vehicles sold in 

2010 to 12.6 million in 2011. The same analysts estimate that the 2012 SAAR will be 13.8 million vehicles. Averages are comprised of forecasts from PricewaterhouseCoopers Autofacts, CSM 

Worldwide, IHS Global Insight, J.D. Power, and IRN. Original Equipment Suppliers Association, 

The State of the Supplier Industry, at 8 (Nov. 10, 2010) (hereinafter ‘‘The State of the Supplier 

Industry’’). 53 Bureau of Economic Analysis, Auto and Truck Seasonal Adjustment Data (Dec. 2, 2010) (online at bea.gov/national/xls/gap_hist.xls); Shaded areas reflect periods of economic recession as 

defined by the National Bureau of Economic Research. See National Bureau of Economic Research, U.S. Business Cycle Expansions and Contractions (online at www.nber.org/cycles/ 

cyclesmain.html) (accessed Jan. 11, 2011). 2011 and 2012 data is an average projection comprised of SAAR projections from PricewaterhouseCoopers Autofacts, CSM Worldwide, IHS Global Insight, J.D. Power & Associates, and IRN. The State of the Supplier Industry, supra note 

52. 54GM Q3 2010 Results, supra note 47, at 6, 11, 15. 

sible for the auto companies to return to profitability at this 

level.51 Industry experts forecast improvements in sales of roughly 

one million units per year for both 2011 and 2012.52

FIGURE 6: LIGHT VEHICLE SALES, AUTOS AND TRUCKS, MILLIONS OF UNITS SOLD 

(SAAR) 53

As noted earlier, the auto industry is also benefitting from rising 

global sales. According to estimates by J.D. Power & Associates, 

worldwide light vehicle sales may rise to 71.1 million vehicles, surpassing the previous record of 70.3 million units in 2007. These 

forecasts highlight the importance of non-U.S. markets to the viability and profitability of the U.S. auto companies: GM sells far 

more cars outside the United States than it does domestically. 

While GM North America delivered 661,000 vehicles in the third 

quarter of 2010, GM delivered 567,000 vehicles in China alone, an 

additional 391,000 in Europe, and another 447,000 in the rest of 

the globe. GM holds 18.3 percent of Brazil’s market share, same as 

its U.S. market share.54 (However, earnings overall are still strongly driven by North America. GM reported in the third quarter of 

2010 that $2.1 billion of its earnings before interest and taxes 


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55 UBS Investment Research, US (not BRIC) is Key NT Growth Market (Nov. 11, 2010) (hereinafter ‘‘UBS Investment Research Paper on Growth Market’’). 56 As recently as 2006, the United States accounted for more than a quarter of the global market, whereas in 2010, the United States accounted for a mere 16.3 percent of global demand. 

J.D. Power & Associates, however, predicts that China’s share of the world market will climb 

from 10 percent in 2006 to 21 percent in 2013. Efraim Levy, Industry Surveys: Autos & Auto 

Parts, Standard & Poor’s Research, at 15–16 (June 24, 2010). 57 UBS points out that ‘‘significant structural changes made by the U.S. auto market in the 

last year have already resulted in enhanced operating margins, despite the low levels of sales.’’ 

While the United States has not historically been a profitable market for domestic automakers, 

UBS estimates profitability will be approximately 10 percent for the industry going forward, 

based on the combination of capacity reductions, reduced labor costs, and improved outlook. In 

UBS’ view, ‘‘[c]ombined with the ongoing sales recovery, these cost cuts paint a very bright picture for the ‘new’ North American auto industry over the next five years.’’ UBS Investment Research Paper on Growth Market, supra note 55; UBS Investment Research Paper, supra note 

45. 58Goldman Sachs concludes that the key risk for the auto sector ‘‘remains the pace of sales 

growth whose outlook is tied intimately to consumer sentiment and the outlook for housing and 

employment in the U.S.’’ PricewaterhouseCoopers notes that while consumer credit has thawed 

substantially over the past year, and lending standards have eased, many consumers ‘‘are voluntarily and involuntarily absent from the new vehicle market,’’ due in large part to widespread 

deleveraging and lenders’ limited capacity to extend financing to potential buyers with ‘‘newly 

tarnished credit.’’ Goldman Sachs Estimate Revisions, supra note 50. See also UBS Investment 

Research Paper, supra note 45. 59PricewaterhouseCoopers, North America Analyst Briefing (Nov. 2010). 

(EBIT) came from its North American branch, whereas its European branch lost $0.6 billion, and the rest of its international operations only earned $0.6 billion.) This global growth in sales has 

been paced by rapid increases in demand in Brazil, Russia, India, 

and China, which now account for 34 percent of industry sales, 

compared to 9 percent in 2000.55 Within the next five years, the 

percentage of sales in these countries and other developing markets 

is forecast to outstrip that of mature markets (North America, Europe, and Japan).56

Some industry analysts are very bullish on the U.S. auto recovery, taking the view that improved capacity usage, reduced labor 

costs, and global platforms can produce sustainable profits.57 The 

global auto industry, however, is highly cyclical and sensitive to 

changes in consumer sentiment, employment, interest rates, gasoline prices, and general economic activity.58 In the absence of any 

improvements in the United States in employment, housing, creditbased spending, and the equity markets, a near-term recovery in 

demand for automobiles may be harder to achieve.59

D. General Motors 

1. Context 

a. Background and the Government Intervention 

One of America’s largest and most storied corporations, GM enjoyed a highly profitable stretch during the 1990s. Its stock price 

peaked above $93 in April 2000, up from $27.50 in late 1991. This 

decade of success was built largely on sales of GM’s light trucks 

and sport utility vehicles (SUVs), as well as the high profit margins 

generated by GMAC/Ally Financial, a finance arm that initially focused on automobiles, but over time evolved into a more diversified 

financial services firm. By 2005, though, GM was losing money. 

High gasoline prices had dampened consumer demand for its vehicles, which lagged behind competitors in fuel efficiency, and its 

market share declined. GM was also hurt by an unsustainable cost 

structure, largely due to the high cost of its retiree health care and 


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60September 2009 Oversight Report, supra note 2, at 3, 19. 61The company effectively came into being on July 10, 2009, when GM sold its ‘‘good’’ assets 

under Section 363 of the Code to a new, government-owned entity, General Motors Company 

(New GM). Order (I) Authorizing Sale of Assets Pursuant to Amended and Restated Master Sale 

and Purchase Agreement with NGMCO, Inc., a Treasury-Sponsored Purchaser; (II) Authorizing 

Assumption and Assignment of Certain Executory Contracts and Unexpired Leases in Connection with the Sale; and (III) Granting Related Relief, In Re General Motors Corp., S.D.N.Y. (No. 

09–50026 (REG)) (July 5, 2009) (online at docs.motorsliquidationdocket.com/pdflib/ 

2968_order.pdf). See also September 2009 Oversight Report, supra note 2, at 19. 62See White House Fact Sheet on General Motors Restructuring, supra note 36. For purposes 

of this report, the General Motors that existed prior to the 2009 restructuring is referred to as 

‘‘Old GM.’’ Its formal name is now Motors Liquidation Company. 63This figure includes investments in both Old GM and New GM. Treasury Transactions Report, supra note 24, at 18–19. Foreign governments provided assistance as well. The governments of Canada and Ontario invested a net of $9.5 billion in loans to GM, resulting in an 11.7 

percent ownership stake. GM also arranged a revolving bridge facility with the German federal 

government with a commitment amount of Ö1.5 billion, equivalent at the time to $2.1 billion. 

That loan was repaid, in full, and extinguished on November 24, 2009. September 2009 Oversight Report, supra note 2, at 31; General Motors Company, Amendment No. 9 to Form S–1: 

Preliminary Prospectus, at 61 (Nov. 17, 2010) (online at www.sec.gov/Archives/edgar/data/ 

1467858/000119312510262471/ds1a.htm) (hereinafter ‘‘GM Amendment No. 9 to Form S–1: Preliminary Prospectus’’). 64The so-called EESA Notices, in reference to the law that established the TARP, include: Notice 2008–100, which concerned recipients of TARP funds under the Capital Purchase Program; 

Notice 2009–14, which extended the guidance in Notice 2008–100 to instruments issued under 

the Targeted Investment Program and the Automotive Industry Financing Program; Notice 

2009–38, which extended the prior guidance to the Asset Guarantee Program and the Systemically Significant Failing Institutions Program, among other actions; and Notice 2010–2, which 

in part provides guidance on the impact of Treasury’s sale of stock that it was issued under 

the TARP programs covered by the prior guidance. In the American Recovery and Reinvestment 

Act of 2009, Congress provided an exception to the section 382 limitations on loss carryovers 

for certain ownership changes of certain TARP recipients, including GM. See American Recovery 

and Reinvestment Act of 2009, Pub. L. No. 111–5, at § 382(n) (2009). 

pension benefits. GM’s investment in automobile design lagged behind competitors, which led to further erosion in the company’s 

market share. It all added up to a spiral of decline. 

In 2006, GM sold much of its ownership in GMAC/Ally Financial, 

which at the time remained profitable. The two firms remained 

highly interdependent under agreements that kept GMAC/Ally Financial as the largest financier of GM automobile purchases. But 

the sale of GMAC/Ally Financial proved to be a stop-gap measure 

for GM, since in 2007 the automaker posted a staggering loss of 

more than $38 billion. The recession that began in December 2007 

took a toll on all manufacturers in the highly cyclical auto industry, but GM, with its high fixed costs and increasingly uncompetitive vehicles, was particularly vulnerable. In the fall of 2008, amid 

the credit crisis, the firm was unable to fund its operations using 

private-sector lenders, and appealed to Congress for an emergency 

bailout. 

The Bush and Obama Administrations provided multiple rounds 

of TARP assistance to GM, culminating in a rapid bankruptcy restructuring in June 2009.60 Out of this process, a new company 

emerged: General Motors Company (New GM).61 This new entity 

shed Old GM’s least valuable assets and most burdensome liabilities.62 To help achieve the transition to a new, leaner company, 

Treasury invested a total of $49.9 billion in GM.63

b. Impact of Changes in Tax Rules 

Like certain other TARP recipients, GM may receive additional 

benefits from the government as a result of certain Treasury-issued 

guidance 64 concerning the rules applicable to carrying forward net 


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65 A net operating loss (NOL) is the excess of a corporation’s deductions over its taxable income. The future benefit of an NOL is considered a deferred tax asset for financial accounting 

purposes. 66 Under Section 172 of the Internal Revenue Code, a corporation is allowed to carry forward 

the amount of any unrecognized net operating loss in the current taxable year to be recognized 

in future taxable years. In general, Section 172 provides that a net operating loss for the current 

taxable year may be carried back two taxable years, and carried forward for up to 20 taxable 

years. For financial accounting purposes, limitations on the use of an NOL carryforward may 

reduce the amount a corporation is able to reflect as a deferred tax asset on its financial statements, and in turn could negatively affect value of such corporation. 67 In general, an ownership change occurs if the percentage of a corporation’s stock owned by 

one or more ‘‘5-percent shareholders’’ increases by more than 50 percentage points over the lowest percentage of stock of such corporation owned by such shareholders at any time during the 

three-year period that ends on the date of the triggering event. Some events that can increase 

the percentage of stock owned by a 5-percent shareholder include a merger or acquisition of the 

corporation, sales of stock to 5-percent shareholders, redemptions, and new issuances of stock. 

A ‘‘5-percent shareholder’’ is any shareholder that owns 5 percent or more of the stock of the 

corporation. The stock owned by all shareholders who are not 5-percent shareholders is treated 

as being owned by one or more ‘‘public groups,’’ which may be treated as 5-percent shareholders. 68The Secretary possesses the authority to issue income tax notices under 12 U.S.C. 

§ 5211(c)(5). In addition, Section 382(m) specifically authorizes the Secretary to issue ‘‘such regulations as may be necessary or appropriate to carry out the purposes of this section.’’ 26 U.S.C. 

§ 382(m). See also Congressional Oversight Panel, January Oversight Report: Exiting TARP and 

Unwinding Its Impact on the Financial Markets, at 16–20 (Jan. 13, 2010) (online at 

cop.senate.gov/documents/cop-011410-report.pdf) (hereinafter ‘‘January 2010 Oversight Report’’). 69Total operating loss and tax credit carryforwards as of December 31, 2009 were $18.9 billion, of which $9.1 billion related to U.S. federal and state net operating loss carryforwards. 

General Motors Company, Amendment No. 5 to Form S–1: Preliminary Prospectus, at F–123 

(Nov. 3, 2010) (online at www.sec.gov/Archives/edgar/data/1467858/000119312510246019/ 

ds1a.htm) (hereinafter ‘‘GM Amendment No. 5 to Form S–1: Preliminary Prospectus’’). 70See January 2010 Oversight Report, supra note 68, at 16–22. 

operating losses (NOLs).65 The ability to carry forward an NOL allows corporations to offset future taxable income with losses from 

prior years, thereby reducing future tax liabilities.66 However, the 

use of NOL carryforwards is subject to various limitations. One 

provision in the Internal Revenue Code limits the amount of taxable income that a corporation may offset in years following an 

ownership change.67

This limitation would have had a significant impact on numerous 

TARP recipients, since several of them experienced a change in 

ownership, as a result of government investments and the disposition of those investments. Treasury issued several notices that applied only to TARP recipients, and addressed the application of the 

ownership change rules in the context of the government’s investment in TARP recipients.68 These notices established the definition 

of ‘‘change in ownership’’ as applied to TARP recipients, in general 

ignoring changes in the government’s equity ownership in determining whether a ‘‘change in ownership’’ has occurred. GM was a 

beneficiary of the tax notices, while Chrysler and GMAC/Ally Financial did not benefit because they were limited liability companies at the time they received government funds and were treated 

as pass-through entities for federal income tax purposes. GM has reported approximately $9.1 billion in U.S. federal and 

state NOL carry-forwards.69 The actual financial impact of Treasury’s tax notices to GM is difficult to determine and will depend 

on the company’s future income.70 Nonetheless, the favorable rules 

provided in the notices are likely to affect GM’s value. 

It is important to note that the change-in-ownership restrictions 

were intended to prevent companies from buying other firms for 

the purpose of benefitting from their tax losses. GM’s situation following the government rescue was a different case, since the government did not invest in GM with the purpose of benefitting from 


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71 January 2010 Oversight Report, supra note 68, at 22. The Special Inspector General for the 

Troubled Asset Relief Program (SIGTARP) has initiated an evaluation of Treasury’s decisionmaking process in providing TARP recipients a waiver from the NOL carry-forward rules. 

SIGTARP seeks to determine the rationale behind the waiver, whether Treasury was aware of 

any tax effect that might result from the waiver, the identity of the decision-makers involved 

in issuing the waiver, and the extent to which Treasury’s policy to dispose of TARP investments 

in a timely manner factored into the decision to issue a waiver. Office of the Special Inspector 

General for the Troubled Asset Relief Program, Engagement Memo—Review of the Section 382 

Limitation Waiver for Financial Instruments Held by Treasury (Aug. 10, 2010) (online at 

www.sigtarp.gov/reports/audit/2010/Engagement%20Memo%20-%20Review%20 

of%20the%20Section%20382%20Limitation%20Waiver%20for%20Financial 

%20Instruments%20Held%20by%20Treasury.pdf). 72 In addition, although the notices permit certain TARP recipients to enjoy a tax benefit that 

they would have otherwise been denied, other carry-forward benefits have been denied to TARP 

recipients. As discussed in more detail in the Panel’s May 2010 report, TARP recipients were 

excluded from the extension of the NOL benefit that was included in the Worker, Homeownership, and Business Assistance Act of 2009. The Act permitted taxpayers with net operating 

losses in 2008 and 2009 to apply those losses to tax payments made in five preceding tax years, 

rather than only to payments made in the two preceding tax years. As the Panel noted, this 

exclusion may have contributed to the development of the TARP ‘‘stigma,’’ as ‘‘bank industry 

sources have stated that when banks accepted TARP funds, they had no reason to anticipate 

that their status as TARP recipients would cause them to be denied access to subsequent benefits afforded to their non-TARP competitors.’’ Congressional Oversight Panel, May Oversight Report: The Small Business Credit Crunch and the Impact of the TARP, at 71 (May 13, 2010) (online at cop.senate.gov/documents/cop-051310-report.pdf). See also Internal Revenue Service, 

Questions and Answers for The Worker, Homeownership, and Business Assistance Act of 2009— 

Section 13 5-year Net Operating Loss (NOL) Carryback (Feb. 24, 2010) (online at www.irs.gov/ 

newsroom/ article /0,,id=217370,00.html). 73September 2009 Oversight Report, supra note 2, at 64, 69. 74Treasury Transactions Report, supra note 24, at 18–19. 75 U.S. Department of the Treasury, General Motors Repays Taxpayers $2.1 Billion, Completing Repurchase of Treasury Preferred Stock (Dec. 15, 2010) (online at 

www.financialstability.gov/latest/pr_12152010.html). The preferred stock was Series A fixed-rate 

cumulative perpetual, which paid a 9 percent dividend. General Motors Company, Form 10–Q 

for the Quarterly Period Ended September 30, 2010, at 36 (Nov. 10, 2010) (online at 

www.sec.gov/Archives/edgar/data/1467858/000119312510255233/d10q.htm) (hereinafter ‘‘GM 

Form 10–Q’’). 

GM’s tax losses. Nonetheless, the Panel has noted previously with 

respect to TARP-recipient banks that the favorable tax guidance 

pitted ‘‘Treasury’s responsibilities as TARP administrator, regulator, and tax administrator against one another,’’ and that these 

notices fuel ‘‘the perception that income tax flexibility is especially, 

and quickly, available for large financial institutions at a time of 

general economic difficulty.’’ 71 This observation would appear to 

apply with equal validity to Treasury’s rescue of GM. On the other 

hand, it is possible that the favorable tax guidance will contribute 

to greater profitability and market value of GM, which will in turn 

enhance the value, and improve the recovery, of the taxpayers’ investment.72

2. More Recent Developments 

Following the formation of New GM, approximately $39.3 billion 

of Treasury’s original investment was converted into common equity, resulting in a government stake representing 60.8 percent of 

GM’s common equity.73 The remaining government investment was 

split between $7.1 billion in debt, $2.1 billion in New GM preferred 

stock, and $986 million in the form of a loan to Old GM. In a series 

of payments between July 2009 and April 2010, GM repaid the $7.1 

billion in debt that it owed to Treasury.74 New GM has also repurchased from Treasury the $2.1 billion in New GM preferred stock.75

The $986 million government loan to Old GM remains outstanding. 

After GM’s bankruptcy, Treasury officials played a significant 

role in the selection of a new CEO, Edward Whitacre, Jr., who was 


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76See Steven Rattner, Overhaul, at 250 (2010). 77Following the bankruptcy proceedings, five new members were appointed to the 12-member 

board of New GM. Treasury’s four appointments were Daniel Akerson (now GM’s CEO), managing director of the private equity firm Carlyle Group; David Bonderman, co-founding partner 

of TPG Capital; Robert Krebs, retired chairman and chief executive of Burlington Northern 

Santa Fe railroad; and Patricia Russo, former chief executive of telecommunications company 

Alcatel-Lucent. To represent its stake, the Canadian government appointed Carol Stephenson, 

dean of Richard Ivey School of Business at the University of Western Ontario, to the Board. 

GM Amendment No. 9 to Form S–1: Preliminary Prospectus, supra note 63, at 196. 78Mr. Akerson had served on the board since July 2009 and had previously served as a managing director of the Carlyle Group. General Motors Company, GM Announces CEO Succession 

Process (Aug. 12, 2010) (online at media.gm.com/content/media/us/en/news/news_detail. 

brand_gm.html/content/Pages/news/us/en/2010/Aug/0812_transition). 79 In addition, the Special Master will continue to oversee GM’s compensation practices until 

the company repays all of the funds it received under the AIFP. See TARP Standards for Compensation and Corporate Governance, 31 CFR § 30.1 (June 15, 2009) (online at 

ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=188bec27fb299 

580f359697139ae586a&rgn=div5&view=text&node=31:1.1.1.1.28&idno=31) (defining ‘‘exceptional 

financial assistance’’ as ‘‘any financial assistance provided under the Programs for Systemically 

Significant Failing Institutions, the Targeted Investment Program, the Automotive Industry Financing Program, and any new program designated by the Secretary as providing exceptional 

financial assistance.’’). The Special Master had authority to render individual compensation determinations for the top 25 most highly paid employees at GM, as well as to review compensation structures for the next 75 employees. On October 23, 2009, he released his determinations 

for the top 25, which reduced cash compensation by 31 percent compared to 2008 and by 46 

percent compared to 2007. Total direct compensation decreased by 24.7 percent compared to 

2008. Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Gregory E. Lau, executive director for Global Compensation, General Motors, Proposed Compensation Payments and Structures for Senior Executive Officers and Most Highly Compensated 

Employees, at Exh. 1 (Oct. 22, 2009) (online at www.financialstability.gov/docs/ 

20091022%20GM%202009%20Top%2025%20Determination.pdf). 80General Motors Company, GM to Acquire AmeriCredit (July 22, 2010) (online at 

media.gm.com/content/media/us/en/news/news_detail.brand_gm.html/content/Pages/news/us/ en/ 

2010/July/0722_americredit). The deal closed effective October 1, 2010. General Motors Company, General Motors Announced Its Acquisitions of AmeriCredit Corp. Will Close Effective October 1, 2010 (Sept. 29, 2010) (online at www.gm.com/investors/announcements-events/ 

event.jsp?id=3533539). SIGTARP has initiated an audit that will look at Treasury’s role in reviewing, approving, or otherwise participating in GM’s decision to acquire AmeriCredit. Office 

of the Special Inspector General for the Troubled Asset Relief Program, Engagement Memo— 

Review of Treasury’s Investment in General Motors Company (Oct. 26, 2010) (online at 

www.sigtarp.gov/reports/audit/2010/Engagement%20Memo%20-%20Review%20 

of%20Treasury%27s%20Investment%20in%20General%20Motors%20Company.pdf). 81See Congressional Oversight Panel, Testimony of Michael Ward, analyst, Soleil-Ward Transportation Research, Transcript: COP Hearing on GMAC Financial Services, at 87 (Feb. 25, 2010) 

(online at frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname 

=111_senate_hearings&docid=f:56723.pdf). 

named to the position on December 1, 2009.76 Treasury also appointed four members of the GM board.77 On August 12, 2010, GM 

announced that Mr. Whitacre would step down as CEO on September 1, 2010 and be replaced by Daniel Akerson, a Treasury-appointed member of GM’s board of directors.78 As a recipient of ‘‘exceptional financial assistance,’’ GM is also subject to the executive 

compensation determinations of Patricia Geoghegan, Treasury’s 

Special Master of TARP Executive Compensation, who replaced 

Kenneth Feinberg as ‘‘pay czar.’’ 79

On July 22, 2010, GM announced the $3.5 billion acquisition of 

AmeriCredit, an automotive finance firm that specializes in 

subprime auto lending.80 Several of GM’s competitors, such as Ford 

and Toyota, have in-house financing divisions, which are often 

called ‘‘captive’’ financing arms. And following GM’s sale of GMAC/ 

Ally Financial in 2006, industry analysts cited GM’s lack of a captive financing arm as a competitive disadvantage.81 Now that GM 

has acquired AmeriCredit, GM says that it still considers GMAC/ 

Ally Financial to be a key strategic partner, but that AmeriCredit 

provides GM with more financial alternatives, and that 


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82General Motors Company conversations with Panel staff (Dec. 3, 2010). 83 An initial public offering (IPO) occurs when a private company issues stock to the public 

for the first time. Prior to the IPO, the issuing institution works with an underwriting firm to 

determine the type of security to issue, the price, and the timing of the offering. 84 Underwriters market shares to their clients. The underwriting syndicate included Morgan 

Stanley, J.P. Morgan, Merrill Lynch, Citigroup, Barclays Capital, Credit Suisse, Deutsche Bank, 

Goldman Sachs & Co., RBC Capital Markets, Banco Bradesco BBI, CIBC World Markets, 

Commerz Markets, BNY Mellon Capital Markets, ICBC International Securities, Itau BBA USA 

Securities, Lloyds TSB Bank, China International Capital Corporation HK Securities, Loop Capital Markets, Williams Capital Group, Soleil Securities Corporation, Scotia Capital (USA), Piper 

Jaffray & Co., SMBC Nikko Capital Markets, Sanford C. Bernstein & Co., Cabrera Capital Markets, Castle Oak Securities, CF Global Trading, C.L. King & Associates, FBR Capital Markets, 

Gardner Rich, Lebenthal & Co., M.R. Beal & Company, Muriel Siebert & Co. and Samuel A. 

Ramirez & Company. UBS was omitted from the final list amid reports that a sales analyst 

within the firm distributed an unauthorized e-mail to an institutional client regarding the valuation of GM. Morgan Stanley and J.P. Morgan Securities served as the primary book runners. 85 Bill Canis, Baird Webel, and Gary Shorter, General Motors’ Initial Public Offering: Review 

of Issues and Implications for TARP, Congressional Research Service, at 12–13 (Nov. 10, 2010) 

(online at www.crs.gov/Products/R/PDF/R41401.pdf) (hereinafter ‘‘GM’s Initial Public Offering: 

Implications for TARP’’). 86GM Amendment No. 5 to Form S–1: Preliminary Prospectus, supra note 69. See General 

Motors Company, General Motors Announces Increase in Size of Public Offering of Common 

Stock (Nov. 17, 2010) (online at media.gm.com/content/media/us/en/news/ 

news_detail.brand_gm.html/content/Pages/news/global/en/2010/1117_amendment). See also GM’s 

Initial Public Offering: Implications for TARP, supra note 85, at 12. According to press reports, 

in the run-up to the IPO, senior officials within the company marketed the IPO to a wide range 

of international investors in order to attract the broadest investor base possible. These investors 

included GM’s partner in China—SAIC—as well as several sovereign wealth funds. See David 

Welch and Jeffrey McCracken, GM Said to Approach Sovereign Wealth Funds to Boost Stock 

Sale, Bloomberg News (Oct. 5, 2010) (online at www.bloomberg.com/news/2010-10-05/gm-is-saidto-approach-sovereign-wealth-funds-to-boost-initial-stock-sale.html); Clare Baldwin, Soyoung 

Kim, and Philipp Halstrick, GM IPO Multiple Times Oversubscribed, International Business 

Times (Nov. 12, 2010) (online at www.ibtimes.com/articles/81505/20101112/gm-ipo- multipletimes-oversubscribed-sources.htm). 87General Motors Company, Amendment No. 8 to Form S–1: Preliminary Prospectus (Nov. 16, 

2010) (online at www.sec.gov/Archives/edgar/data/1467858/000119312510261467/ds1a.htm). 88GM also began trading under ‘‘GMM’’ on the Toronto Stock Exchange. 89 In addition to $18.1 billion in common equity, the company issued $5.0 billion in preferred 

stock. The preferred stock issuance consisted of Series B mandatory convertible junior preferred 

shares, which pay a dividend of 4.75 percent. Data accessed from Bloomberg on Nov. 19, 2010. 90While the GM common stock offering was second only to Visa’s 2008 IPO, the total funds 

raised by GM exceeded those raised by Visa. See Visa Investor Relations, Visa Inc., Largest IPO 

in US History (Mar. 19, 2008) (online at phx.corporate-ir.net/phoenix.zhtml?c=129145&p=irolnewsArticle&ID=1120295&highlight=). 

AmeriCredit provides an auto financing platform that GM can 

build out.82

Throughout much of 2010, GM was preparing for an initial public offering (IPO), a process that promised to allow Treasury to sell 

its stake in GM’s common stock.83 The final underwriting agreement consisted of 35 underwriters, both large and small firms.84

Treasury negotiated an underwriting fee of 0.75 percent, as opposed to a more customary figure of 2 or 3 percent for an IPO of 

comparable size.85 Although the IPO was expected to price at a 

range of between $26 and $29, strong investor enthusiasm during 

the company’s road show presentations resulted in the offering 

being six times oversubscribed.86 Subsequently, the price was increased to $33.87

The IPO took place on November 18, 2010, when GM common 

stock began trading under the ticker ‘‘GM’’ on the New York Stock 

Exchange (NYSE).88 Total funds generated in this offering were 

$23.1 billion, before accounting for underwriting fees and commissions.89 Based on total funds raised, the IPO was the largest IPO 

in U.S. history.90


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91Shares of preferred stock closed at $50.45. Data accessed from Bloomberg on November 19, 

2010. 92The White House, Remarks by the President on General Motors (Nov. 18, 2010) (online at 

www.whitehouse.gov/the-press-office/2010/11/18/remarks-president-general-motors). 93 Id. 94General Motors Company, General Motors Announces Underwriters’ Exercise of Over-allotment Options (Nov. 26, 2010) (online at www.gm.com/news-article.jsp?id=/content/Pages/news/us/ 

en/2010/Nov/1126_exercise.html). 95GM Amendment No. 9 to Form S–1: Preliminary Prospectus, supra note 63, at 9. 96GM anticipated that it would use approximately 43 percent of the preferred proceeds to purchase Treasury’s Series A preferred holdings. It planned to use the remainder of the proceeds— 

supplemented with cash on hand—to make the cash pension contribution. See General Motors 

Company, Form 424B1: Final Common Prospectus, at 38 (Nov. 18, 2010) (online at www.sec.gov/ 

Archives/edgar/data/1467858/000119312510263484/d424b1.htm) (hereinafter ‘‘GM Form 424B1: 

Final Common Prospectus’’); General Motors Company, GM Makes $4 Billion Pension Plan Contribution (Dec. 2, 2010) (online at www.gm.com/news-article.jsp?id=/content/Pages/news/us/en/ 

2010/Dec/1202_pension.html) (hereinafter ‘‘GM Makes $4 Billion Pension Plan Contribution’’). 97 U.S. Department of the Treasury, Taxpayers Receive Additional $1.8 Billion in Proceeds 

from GM IPO (Dec. 2, 2010) (online at www.financialstability.gov/latest/pr_12022010.html). 98 An over-allotment option is an agreement between an issuer and its underwriter granting 

the underwriter the option to purchase and then resell additional shares to the investing public. 

Usually the over-allotment option is exercised by the underwriter if the demand before and after 

pricing is strong. Treasury’s 33.3 percent ownership stake in GM is calculated on a basic—not 

fully diluted—share basis. 

GM’s stock performed well throughout its first day of trading, with the common stock settling at a price of $34.19.91 President 

Obama applauded the IPO, noting that ‘‘American taxpayers are 

now positioned to recover more than my administration invested in 

GM.’’ 92 He stated that because GM’s management had made the 

‘‘tough decisions necessary to make themselves more competitive in 

the 21st century—the American auto industry—an industry that’s 

been the proud symbol of America’s manufacturing might for a century; an industry that helped to build our middle class—is once 

again on the rise.’’ 93

On November 26, 2010, GM announced that its underwriters exercised in full their so-called over-allotment options to purchase an 

additional 71.7 million shares of common stock from the selling 

stockholders, for a total of $2.37 billion, plus an additional 13 million shares of mandatory convertible junior preferred stock from 

the company, for a total of $650 million.94

Net proceeds from the sale of common stock for existing GM shareholders totaled $18.0 billion. Net proceeds from the sale of 

preferred stock were $4.9 billion, which compared favorably to 

GM’s November 17 estimate of preferred stock proceeds of $3.9 billion–$4.4 billion,95 bringing the total net proceeds to $22.9 billion. 

Some of GM’s proceeds from the sale of the preferred shares went 

to redeem Treasury’s $2.1 billion in preferred stock holdings. GM 

anticipates that it will contribute $2.0 billion in common stock to 

its U.S. hourly and salaried pension plans, in addition to a $4.0 billion cash contribution to the pension plans that it announced on 

December 2, 2010.96

In total, the sales of GM stock produced $13.5 billion in receipts 

to the Treasury.97 Including exercise of the over-allotment option, 

Treasury sold over 412 million shares of the total 550 million 

shares sold. Treasury still holds more than 500 million shares, or 

33.3 percent ownership of GM.98 During its first three weeks on 

the NYSE, GM’s stock traded at between $33.17 and $34.89 per 

share. Figure 7 shows the amount and current status of the government’s various investments in GM. Of the $49.9 billion in government assistance, $27.2 billion currently remains outstanding. 


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FIGURE 7: TARP INVESTMENT IN GM 

[Millions of dollars] 

Original 

Investment 

Date 

Original 

Assistance 

Amount 

Original 

Investment 

Type 

Exchange 

Current 

Investment 

Type 

Cumulative 

Investment 

Amount 

Amount 

Repaid 

12/29/2008 ... $884 Loan ................. Exchanged for GMAC 

Equity.

— — 

12/31/2008 ... 13,400 Loan with additional notes.Old GM debt credit 

bid; New GM equity received.

New GM common equity.$13,400 

4/22/2009 ..... 2,000 Loan with additional notes.Old GM debt credit 

bid; New GM equity received.

New GM common equity.2,000 

5/20/2009 ..... 4,000 Loan with additional notes.Old GM debt credit 

bid; New GM equity received.

New GM common equity.4,000 

5/27/2009 ..... 361 Loan with additional notes.Old GM debt credit 

bid; New GM equity received.

New GM common equity.361 $361 

6/3/2009 ....... 30,100 Loan with additional notes 

(see breakdown below).

.................................. .......................... 30,100 

................ .......................... Old GM debt credit 

bid; New GM equity received.

New GM common equity.19,942 

................ .......................... Became New GM 

loan.

New GM loan ... 7,072 6,712 

................ .......................... Became New GM preferred stock.New GM preferred stock.2,100 2,139 

................ .......................... Remained Old GM 

loan.

Old GM loan .... 986 

Total .............. $50,745 .......................... .................................. .......................... $49,861 99 $22,717 

99 This figure includes $13.5 billion in proceeds from the GM IPO that are not directly tied to a particular tranche of investment made in GM prior to its bankruptcy. Therefore, these funds are not accounted for as a line item, but instead are credited solely to the total line. 


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100The capacity utilization rate measures the amount of output currently being produced by 

the firm relative to the maximum amount of output it could produce given its current inputs. 101See General Motors Company, GM Retail Roadshow, at 5, 10, 17 (Nov. 18, 2010) (online 

at cop.senate.gov/documents/gm-publicoffering.pdf) (hereinafter ‘‘GM Retail Roadshow’’); GM 

conversations with Panel staff (Dec. 3, 2010). GM’s CEO and CFO have stated in the media that 

their goal is to get GM to zero debt. See CNBC, GM Aiming for No Debt on Balance Sheet: CEO 

(Nov. 18, 2010) (online at classic.cnbc.com/id/40251271/). GM’s CFO, Chris Liddell, stated that 

this goal could realistically be reached in three to five years. See The Inside Track with Deirdre 

Bolton & Erik Schatzker, Interview with GM CFO Chris Liddell, Bloomberg News (Nov. 18, 

2010) (findarticles.com/ p/news-articles/ceo-wire/mi_8092/is_20101118/chris-liddell-bloomberg- tv/ 

ai_n56320173/?tag=content;col1). 

102GM Form 424B1: Final Common Prospectus, supra note 96, at 55, 60. 103General Motors Company, Q2 2010 Results, at 6 (Aug. 12, 2010) (online at media.gm.com/ 

content/dam/Media/gmcom/investor/2010/Q2-Chart-Set.pdf) (hereinafter ‘‘GM Q2 2010 Results’’). 104GM Form 424B1: Final Common Prospectus, supra note 96, at 19. 105General Motors Company, Form 8–K for the Period Ended November 3, 2010, at 5 (Nov. 

5, 2010) (online at www.sec.gov/Archives/ edgar/data/1467858/ 000119312510249908/d8k.htm). 106 Id. at 5. 107GM Form 424B1: Final Common Prospectus, supra note 96, at 19. These closings are substantially fewer in number than GM initially announced. See Office of the Special Inspector 

General for the Troubled Asset Relief Program, Factors Affecting the Decisions of General Motors 

and Chrysler to Reduce Their Dealership Networks, at 1 (July 19, 2010) (SIGTARP 10–008) (online at www.sigtarp.gov/reports/ audit/2010/ Factors%20Affecting%20the%20 Decisions%20of%20 

General%20Motors%20 and%20 Chrysler%20to%20 Reduce%20Their%20 Dealership%20 

Continued 

3. Outlook 

While Treasury’s investment in GM provided a backstop for a 

company on the brink of failure, the rescue forced taxpayers to 

bear considerable risk, risk they will continue to bear until Treasury disposes of the remainder of its investment in the company. 

This section examines the viability of GM, an issue that will impact 

the outcome of the government’s investment in the company. 

a. GM’s Emerging Business Model 

GM’s strategy for improving its business model focuses on four 

key areas: (1) streamlining operations so as to improve capacity 

utilization; 100 (2) reducing labor costs; (3) strengthening competitiveness in international markets; and (4) reducing financial leverage in order to improve the company’s balance sheet.101

i. Streamlining Operations 

GM is taking a number of steps in order to streamline its operations. First, it plans to reduce the total number of plants it operates in the United States from the 47 it had in 2008 to 34 by the 

end of 2010 and to 31 by 2012.102

Second, GM has reduced the number of brands it offers in the 

United States from eight to four. GM’s four core brands are Chevrolet, GMC, Cadillac, and Buick, which is the fastest growing automotive brand in the United States.103 GM has discontinued or divested Pontiac, Saturn, Saab, and Hummer.104 October 2010 calendar-year-to-date retail sales for GM’s four core brands were up 

15 percent, and total sales were up 22 percent.105 Year-to-date 

through October, GM’s four core brands sold 85,737 more units 

than its eight brands sold during the same period in 2009.106

Third, GM has also announced a goal of reducing its number of 

domestic dealerships from approximately 5,000 as of September 30, 

2010 to 4,500 by the end of 2010. GM expects these reductions to 

produce cost savings over time, but it also recognizes that they 

could also have the effect of reducing GM’s U.S. market share.107


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Networks%207_19_2010.pdf) (stating that GM announced on June 2, 2009 that it planned to 

‘‘wind down’’ 1,454 of its 5,591 dealerships by October 2010). 108GM maintains that the scale of this dealer network strengthens its ability to compete in 

markets outside the United States. See GM Form 424B1: Final Common Prospectus, supra note 

96, at 3. 109 UBS Investment Research Paper, supra note 45, at 4. 110 UBS Investment Research, General Motors Company: Why Buy Now? (Dec. 15, 2010) (hereinafter ‘‘UBS Investment Research Paper’’). 111GM Form 424B1: Final Common Prospectus, supra note 96, at 3. 112GM Form 424B1: Final Common Prospectus, supra note 96, at 3. 113The 2010 labor cost figure is an estimate that GM used in its retail roadshow. GM Retail 

Roadshow, supra note 101, at slide 17. See also Moody’s Investors Service, Credit Opinion: General Motors Company (Oct. 29, 2010) (hereinafter ‘‘Moody’s Credit Opinion: General Motors Company’’) (‘‘This shift in the industry’s operating structure has been the result of significant 

headcount reductions, the elimination of excess capacity, and the implementation of a new UAW 

contract.’’). 114The 2010 employee figure is an estimate that GM used in its retail roadshow. GM Retail 

Roadshow, supra note 101, at slide 17. 115 UBS Investment Research Paper, supra note 110, at 6. 116 A roadshow is a presentation to potential institutional or retail investors prior to the initial 

stock offering. 117GM Retail Roadshow, supra note 101, at slide 10. 118GM Form 424B1: Final Common Prospectus, supra note 96, at 1. 119GM Form 424B1: Final Common Prospectus, supra note 96, at 3. 

Despite these closings, GM continues to maintain an independent 

international network of 21,000 dealers.108

As a result of these efforts, as well as an underlying improvement in sales, UBS estimates that GM’s capacity utilization, which 

measures the company’s actual output as a percentage of its potential output, will improve from 43 percent in 2009 to 74 percent in 

2010.109 UBS expects GM’s capacity utilization to fall in 2011 before rising again in 2012 and beyond.110

ii. Reducing Labor Costs 

GM has sought to use the restructuring to reduce the cost of its 

hourly labor force.111 More specifically, it has reduced the number 

of its employees, restructured its labor agreement, and transferred 

its health care obligations to the UAW’s Voluntary Employee Benefit Association (VEBA).112 Overall, GM states that it has reduced 

its U.S. hourly labor costs from $16 billion in 2005 to $5 billion in 

2010.113 It also states that it has reduced the number of hourly employees in the United States from 111,000 in 2005 to 50,000 in 

2010.114 Since 2008, the company has reduced its global workforce 

by about 35,000 employees, including about 11,000 hourly employees in United States,115 though the number of employees has risen 

since GM emerged from bankruptcy in 2009. The company believes, 

and industry analysts concur, that a more competitive cost structure will allow GM to compete better for market share. 

iii. Improving International Competitiveness 

GM also states that it is enhancing its competitiveness in international markets. According to the presentation GM used in its retail road show,116 it is refocusing on emerging markets, with a particular focus on Brazil, Russia, India, and China.117 In 2009, 72 

percent of GM’s total sales volume came from outside the United 

States, including 39 percent from emerging markets.118 GM’s market share in Brazil, Russia, India, and China grew from 9.8 percent 

in 2004 to 12.7 percent in 2009.119 It has the number one market 

share position in those four nations as a whole, and it occupies the 


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120 In the BRIC countries, GM had a share of 13 percent in 2009, compared to 11 percent for 

Volkswagen, 4 percent for Toyota, and 3 percent for Ford. The company’s market share in 

China, specifically, was 13.3 percent in 2009. GM Retail Roadshow, supra note 101, at slide 9; 

GM Form 424B1: Final Common Prospectus, supra note 96, at 3. 121GM Retail Roadshow, supra note 101, at slide 10. 122General Motors Company conversations with Panel staff (Dec. 3, 2010). 123GM Makes $4 Billion Pension Plan Contribution, supra note 96. 124The $35 billion consists of $13 billion in underfunded U.S. pension obligations, $10 billion 

in underfunded non-U.S. pension obligations, $7 billion in perpetual preferred stock, and $5 billion in debt. GM Retail Roadshow, supra note 101, at slide 19. 125GM Retail Roadshow, supra note 101, at slide 19. 126 In its presentation to retail investors for its upcoming IPO, the company presented guidance for the following metrics: earnings before interest and taxes (EBIT), EBIT margin, and free 

cash flow for both the middle of the business cycle and at the high end of the cycle. These projections provide insight into how management foresees GM’s performance in 2011 and beyond. The 

company’s EBIT mid-point projections are $12 billion at mid-cycle and $18 billion at high-cycle. 

The company’s midpoint projections for free cash flow are $9 billion at mid-cycle and $15 billion 

at high cycle. GM Retail Roadshow, supra note 101, at slide 18. 127See General Motors Company, Q3 Financial Highlights, at 6, 7 (2010) (online at 

media.gm.com/content/dam/Media/gmcom/investor/2010/Q3-Financial-Highlights.pdf); General 

Motors Company, Q2 Financial Highlights, at 6, 7 (2010) (online at media.gm.com/content/dam/ 

Media/gmcom/investor/2010/Q2-Financial-Highlights.pdf); GM Form 10–Q, supra note 75, at 1, 

2. Return on assets is defined as net income divided by total assets. Profit margin is defined 

as net income divided by sales. These metrics are computed by taking the following data points 

from the quarterly filings: net income, total assets, and net sales. 128GM Retail Roadshow, supra note 101, at slide 9. 129GM Q3 2010 Results, supra note 47, at 2. 130General Motors Company, Form 10–K for the Fiscal Year Ended December 31, 2009, at 39 

(Apr. 7, 2010) (online at www.sec.gov/Archives/edgar/data/1467858/000119312510078119/ 

d10k.htm). 

top spot in China as well.120 GM projects that Brazil, Russia, India, 

and China have the largest growth potential of any markets in the 

world.121

iv. Reducing Leverage 

GM is seeking to reduce its leverage in order to lower the cost 

of servicing its debt and become less vulnerable to the ups and 

downs of the automotive industry’s business cycle.122 GM also intends to fund its pension plans fully. To that end, GM on December 

2, 2010, announced the aforementioned voluntary $4 billion cash 

contribution to its U.S. pension plans.123 More broadly, the company stated in its November 2010 public offering presentation that 

it has $24 billion in available liquidity, as compared to about $35 

billion in underfunded pension obligations, debt, and perpetual preferred shares.124 Reducing its debt burden should allow GM to 

strengthen its credit rating; the company is seeking to achieve a 

strong investment grade rating.125

b. Results 

GM’s most recent financial statements provide four key indicators of improvement in overall performance: revenue and sales, 

credit ratings, market share, and access to financing.126 While it 

may be too soon in the business cycle to discern trends, GM’s initial financial and operating ratios are improving. Both return on 

assets and return on sales have increased gradually through 

2010.127 In total, GM sold 8.2 million units worldwide during the 

12-month period ending September 30, 2010.128 Net revenue totals 

for each of the first three quarters of 2010 were more than $30 billion.129 (These revenue totals are comparable to GM’s revenue results in 2009. In the second half of 2009, GM’s total net sales and 

revenue were $57.5 billion.)130 However, as analysts have noted, 


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131David Whiston, General Motors Company Has Reinvented Itself, Morningstar, at 5, 15 

(Nov.18, 2010). 132 Joseph Amaturo, A Lot of ‘‘Old’’ GM in the ‘‘New’’ GM, Buckingham Research Group, at 

47 (Dec. 6, 2010) (hereinafter ‘‘Buckingham Research Group Paper’’). 133GM Form 424B1: Final Common Prospectus, supra note 96, at 190. 134General Motors Company, GM to Add 1,000 Electric Vehicle Engineering and Development 

Jobs in Michigan (Nov. 30, 2010) (online at media.gm.com/content/media/us/en/news/ 

news_detail.brand_gm.html/content/Pages/news/us/en/2010/Nov/1130_jobs.html). 135The issuer default rating is an indicator given by credit rating agencies to potential investors of debt securities, which estimates the likelihood of default and relative creditworthiness 

of securities issued by a certain company. 136Fitch Ratings, Fitch Assigns Initial [BB-] IDR to General Motors (Oct. 6, 2010) (online at 

www.businesswire.com/news/home/20101006006853/en/Fitch-Assigns-Initial-BB--IDR-GeneralMotors). 137The ratings agencies include DBRS, Fitch, Moody’s, and Standard & Poor’s. GM Form 

424B1: Final Common Prospectus, supra note 96, at 134. 138Standard & Poor’s does, however, refer to GM as a government-related entity, albeit one 

whose importance to the government is limited because of the expectation that the government 

will reduce its ownership in GM. Standard & Poor’s, Global Credit Portal RatingsDirect: General 

Motors Co., at 2–3 (Nov. 11, 2010); E-mail from Standard & Poor’s to Panel staff (Dec. 9, 2010). 139GM Form 424B1: Final Common Prospectus, supra note 96, at 3. See also Moody’s Credit 

Opinion: General Motors Company, supra note 113, at 1 (‘‘GM’s Ba2 CFR reflects the company’s 

strong position in developing markets, a competitive cost structure in North America, an improving domestic product portfolio, and a significantly stronger balance sheet and liquidity position as a result of the bankruptcy reorganization process.’’). 140See GM Retail Roadshow, supra note 101, at slide 16. 141GM Q3 2010 Results, supra note 47, at 10. 

the company is able to sell its products at higher prices and has 

improved its margins materially.131 In North America specifically, 

sales in the third quarter of 2010 were $21.5 billion versus $14.4 

billion in the same quarter a year prior.132 In addition, GM expanded its North American operations by adding 3,000 employees 

between January 1 and September 30, 2010.133 On November 30, 

GM announced plans to hire an additional 1,000 engineers and researchers in Michigan.134

On October 6, 2010, the credit rating agency Fitch gave GM the 

Issuer Default Rating 135 of BB-, non-investment grade or speculative, the same as Ford.136 While GM has considerably less debt 

than Ford, Fitch noted that GM’s large pension obligations dwarf 

those of Ford. GM is rated as having a stable outlook by four different credit agencies.137 While it is not clear what GM’s credit ratings would be absent government support, Standard & Poor’s 

states that it does not give GM a ratings boost because of the government’s investment.138

GM is seeking to lower its ‘‘breakeven point,’’ the number of cars 

that the company needs in order for its revenues to equal its costs. 

Doing so, will enable GM to remain profitable even at the bottom 

of the business cycle. In its U.S. operations, GM has reduced its 

break-even point from an industry-wide sales total of 15.5 million 

units in the third quarter of 2007 to less than 11 million units in 

the fall of 2010.139 In 2007, GM needed a 25 percent market share, 

or roughly 3.88 million vehicles sold out of a market of 15.5 million, 

in order to break even. Today, GM needs a market share of less 

than 19 percent, or approximately 2.09 million vehicles sold out of 

a market of 11 million.140 In sum, GM is now able to break even 

with a smaller share of a smaller market. This improvement has 

been driven in part by the reduction in labor costs, in addition to 

improvements in vehicle pricing.141 For example, average transaction prices for the Chevrolet Equinox are up $3,900 from 2009 to 


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142GM Retail Roadshow, supra note 101, at slide 6. 143 UBS Investment Research Paper, supra note 110, at 11–15. 144For a more detailed discussion of the government’s shareholder principles and their implementation, see Section B, infra. 145Treasury conversations with Panel staff (Nov. 22, 2010). 146General Motors Company conversations with Panel staff (Dec. 3, 2010). 147See Moody’s Investors Service, GM’s IPO—A Better Balance Sheet and Maybe Even More 

Car Customers, at 1 (Nov. 22, 2010) (hereinafter ‘‘Moody’s Paper on GM’s Balance Sheet’’); 

Treasury conversations with Panel staff (Nov. 22, 2010). Treasury also expressed concern that 

shareholders from Old GM could disrupt the pricing process had they gained control of their 

shares before the IPO. 

2010, and Buick LaCrosse average transaction prices are up $7,500 

over the same period.142

GM’s overall market share has been falling in both the United 

States and Europe. In the United States, GM’s market share fell 

from 28.6 percent in 2002 to 22.2 percent in 2008, and then to an 

estimated 19.0 percent in 2010. In Europe, GM’s market share fell 

from 10.2 percent in 2000 to 9.3 percent in 2008, and then to 8.1 

percent in 2010.143 GM’s post-bankruptcy declines in market share 

likely stem at least in part from the company’s decision to discontinue certain brands and to reduce consumer incentives for vehicle purchases. 

4. Treasury’s Exit Strategy 

Between April and November 2010, Treasury interacted closely 

with GM in an attempt to ensure that Treasury had all relevant 

market demand information prior to the IPO to help determine 

how much of its stock it should sell and at what price.144 Treasury 

conducted due diligence, relying heavily on the input of its advisor, 

Lazard Ltd. Lazard also handled many of the direct interactions 

with the IPO’s underwriters. In making determinations about the 

volume and price of its stock sales, Treasury states that it sought 

to abide by its shareholder principles, balancing the desire to exit 

as soon as practicable against its objective of maximizing the value 

of the taxpayers’ investment. Consistent with these principles, according to Treasury, it sought to leave GM in charge of day-to-day 

management decisions, including the selection of underwriters and 

timing of the IPO. Treasury also worked closely with the underwriters—rather than the company—to determine the timing and 

pricing of the government’s sale of GM stock.145 GM states that it 

decided the timing of the IPO, though it did have discussions with 

Treasury about the issue. The company also states that Treasury’s 

primary role was related to how many shares it would eventually 

choose to sell.146

Treasury sold nearly 40 percent of its equity stake through the 

IPO. Despite the possibility that the value of GM’s equity could increase within the next year as a result of a continued market recovery, the seasoning of GM’s management, and a slate of new 

automobiles due to be released, Treasury maintains that it decided 

not to postpone the sale of its shares—or revise the amount being 

offered—for several reasons. While market risk and execution risk 

were two significant concerns, Treasury also said that it was important to signal to the market that the government intended to 

exit its investment and return the funding of the company to private hands.147


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148GM Form 424B1: Final Common Prospectus, supra note 96, at 236. 149Treasury conversations with Panel staff (Nov. 22, 2010). 150See, e.g., Moody’s Paper on GM’s Balance Sheet, supra note 147, at 1 (‘‘This progress on 

the product portfolio front is supported by the IPO’s positive messages about both the improving 

financial health of GM and the reduction in government ownership of the company.’’). 151See Section D.3.b. 152See Section D.2. 

After the offering, Treasury’s total stake in the company fell from 

60.8 percent to 36.9 percent. When the underwriters exercised their 

over-allotment option on November 26, Treasury’s stake fell to 33.3 

percent.148 As is customary for many IPOs, Treasury will be unable 

to begin selling the remainder of its investment for 180 days following the IPO. After this lock-up period ends, Treasury maintains 

that it will look to sell the remainder of its shares in accordance 

with its shareholder principles and subject to market events.149

a. Analysis of Treasury’s Exit Strategy 

The strong investor demand for GM’s IPO stands in stark contrast to the company’s predicament in the fall of 2008. Yet despite 

the improvements that GM has achieved in a relatively short period of time, there is still uncertainty regarding the taxpayers’ investment in GM. This section examines GM’s efforts to transform 

itself into a far more viable entity. While the outlook is more positive than it was two years ago, the GM investment is still likely 

to result in an overall loss for taxpayers. 

i. GM Emerged from the Restructuring as a Far More Viable 

Business 

According to industry analysts, GM has emerged from the restructuring as a far more viable business, positioned to take advantage of its streamlined cost structure and a competitive labor situation to return to profitability.150 That GM is a much improved business is evidenced by its results from the first three quarters of 

2010,151 as well as the strong demand for shares in the IPO.152 The 

company has successfully executed many of its core objectives for 

the restructuring: streamlining its capacity, shedding labor costs, 

and refocusing its efforts on high-growth international markets. Although, significant uncertainty remains for the company, the company’s efforts to refocus its business strategy and shed costs have 

substantially increased the likelihood that taxpayers will suffer 

minimal losses on their investment, or perhaps even be repaid in 

full. 

ii. Uncertainty Remains 

The Panel has identified three sources of uncertainty that could 

have a negative impact on GM’s stock price: international markets, 

GM’s long-term competitive viability, and GM’s long-term obligations and legacy liabilities. From the perspective of U.S. taxpayers, 

this uncertainty is important because Treasury is likely to continue 

to hold a stake in GM through most of 2011 and perhaps into 2012. 

International Markets 

The company still faces uncertainty with respect to certain operating units going forward, particularly in Europe, which accounts 


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153 Buckingham Research Group Paper, supra note 132, at 2. 154See UBS Investment Research Paper, supra note 110, at 11–12. 155Moody’s Credit Opinion: General Motors Company, supra note 113, at 2. 156See Moody’s Credit Opinion: General Motors Company, supra note 113, at 2. 157 UBS Investment Research Paper on Growth Market, supra note 55, at 11–12. 158GM Q3 2010 Results, supra note 47, at 15. 159See UBS Investment Research Paper on Growth Market, supra note 55, at 1. 160See UBS Investment Research Paper, supra note 110, at 1–3. 161GM Retail Roadshow, supra note 101, at slide 13. 162Motor Trend, 2011 Motor Trend Car of the Year: Chevrolet Volt (online at 

www.motortrend.com/oftheyear/car/1101_2011_motor_trend_car_of_the_year_chevrolet_volt/ 

index.html). 

for 22 percent of the company’s sales.153 GM has a restructuring 

plan for its European operations, similar to its U.S. plan, that 

seeks to cut European capacity by 20 percent, reduce labor costs by 

about $320 million per year, and improve the weak image of the 

Opel brand among European consumers.154 But GM’s restructuring 

plans in Europe are lagging behind its American efforts—the company will not complete the European restructuring for at least a 

year.155 In the meantime GM is generating significant losses in Europe.156

In addition, competition will likely increase in many of GM’s 

higher growth markets. GM’s market share in developing nations 

has been growing: the company is first in Chinese market share, 

third in Brazilian market share, and third in Russian market 

share. But analysts believe that GM’s foothold in these markets is 

somewhat unstable, given the sharp competition, and they project 

that GM’s market share in Brazil and China will decline by 

2015.157 Early indicators suggest that this trend may have already 

begun, as reflected in a market share decline in Brazil from 19.9 

percent to 18.3 percent during 2010.158 Furthermore, the potential 

upside for GM in China is limited by the fact that it is required 

to operate as a joint venture that only takes a proportional share 

of the profits.159 On the other hand, GM starts from a strong position in China, Brazil, and Russia, and any future losses in market 

share may be more than offset by the growth of those markets. 

Competitive Viability 

There are also questions about the competitive viability of GM 

over both the short term and the long term. In the short term, the 

questions involve what is generally seen as a lackluster product 

launch schedule in 2011, particularly in the United States, where 

its market share faces pressure from Ford.160 GM launched 28 new 

vehicles in 2010, but just four of those launches were in the United 

States. The story for 2011 is similar, with 27 product launches 

planned, of which four are for the United States. GM’s product 

lineup is expected to improve in later years, with 37 product 

launches, including 15 U.S. launches, planned for 2013.161

Over the long term, there are still questions about GM’s ability 

to develop new products that respond to—or drive—market demand. In particular, the company must be able to compete in the 

development of fuel-efficient technologies. To that end, it is encouraging that the electric Chevrolet Volt was recently named Motor 

Trend’s 2011 Car of the Year,162 but the outcome of GM’s large investment in the Volt remains unclear. The Volt will compete 

against an increasingly crowded field of fuel-efficient vehicles, inVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00041 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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163See Buckingham Research Group Paper, supra note 132, at 30–31. 164 Average Transaction Price (ATP) increases are as follows: crossovers are 11 percent, cars 

are 9 percent, and trucks are 6 percent. GM Q2 2010 Results, supra note 103, at 8. 165GM Q3 2010 Results, supra note 47, at 20. 166GM Q3 2010 Results, supra note 47, at 20. 167GM Form 424B1: Final Common Prospectus, supra note 96, at 138. 168Motors Liquidation Company, Motors Liquidation Company Files Joint Chapter 11 Plan, 

at 1–2 (Aug. 31, 2010) (online at www.motorsliquidation.com/PressReleases.aspx) (hereinafter 

‘‘Motors Liquidation Company Files Joint Chapter 11 Plan’’). 169 U.S. Environmental Protection Agency, Motors Liquidation Company (f/k/a General Motors (GM) Corporation) Bankruptcy Settlement (Oct. 20, 2010) (online at www.epa.gov/compliance/resources/cases/cleanup/cercla/mlc/index.html). 170Motors Liquidation Company Files Joint Chapter 11 Plan, supra note 168, at 2. 171The $35.0 billion threshold refers specifically to unsecured claims that do not have a priority on Old GM’s assets and are allowed as part of the bankruptcy proceeding. GM Amendment 

cluding the new Nissan Leaf. It is unclear whether the Volt, which 

uses lithium batteries that will eventually need to be replaced, will 

prevail over the hybrid technology being pursued by competitors.163

Senior officials at GM expect the Chevrolet Cruze to become an 

alternative to the Ford Focus, Honda Civic, and Toyota Corolla in 

the small-car segment—traditionally a less profitable but rather 

large segment of U.S. car sales—but at this point the newly 

launched Cruze lacks a significant track record of sales in the 

United States. Moreover, while it is encouraging that average 

transaction prices have increased in GM’s crossover segment—vehicles that combine elements of cars and SUVs—such increases have 

not been as widespread in GM’s car and truck portfolios.164

Long-Term Obligations and Legacy Liabilities 

While GM shed many of its most onerous liabilities during the 

restructuring, several long-term obligations remain. Estimates differ on how much money GM will need to contribute to underfunded 

pensions and other post-retirement employee benefits (OPEB) over 

the short and long term. The company has disclosed that as of September 30, 2010, its underfunded pension liability was $29.4 

billon.165 At the same time, GM’s underfunded OPEB stood at $9.4 

billion.166 The company expects to disburse nearly $8.4 billion per 

year from 2011–2014 in net benefit payments for its U.S. pension 

plans, plus $1.4 billion per year for its non-U.S. pensions plans.167

Old GM, whose remaining assets include unsold manufacturing 

plants and equipment, also has significant legacy liabilities that 

could eventually impose costs on taxpayers. Old GM has created 

four separate trusts to pay off environmental claims, unsecured 

creditors, asbestos claims, and litigation claims. More than 70,000 

claims for more than $275 billion have been made against all four 

Old GM trusts, but more than $150 billion in claims have been resolved or eliminated.168 It is unclear what the recovery rate on 

claims will be. In August 2010, Old GM proposed a bankruptcy 

plan that would make $536 million available to handle environmental claims. In October 2010, Old GM agreed to a $773 million 

settlement to resolve its liabilities at 89 Old GM sites.169 The company anticipates the majority of the environmental remediation 

will be completed or under way in five years.170

In the event that there are more than $35.0 billion in unsecured 

claims against Old GM, New GM will be obligated to issue shares 

of its common stock to Old GM, diluting Treasury’s and other 

shareholders’ stakes in New GM.171 Treasury also continues to 


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No. 5 to Form S–1: Preliminary Prospectus, supra note 69, at 11. Of course, the dilution to 

Treasury would occur only if Treasury remains a shareholder at that point. 172 U.S. Department of the Treasury, Office of Financial Stability Agency Financial Report: 

Fiscal Year 2010, at 11 (Nov. 15, 2010) (online at www.financialstability.gov/docs/ 

2010%20OFS%20AFR%20Nov%2015.pdf) (hereinafter ‘‘OFS Agency Financial Report’’). 173See Christine Tierney, David Shepardson, and Christina Rogers, Rattner Predicts ‘Huge 

Success’ for GM IPO, The Detroit News (Nov. 16, 2010) (online at detnews.com/article/20101116/ 

AUTO01/11160370/Rattner-predicts-%E2%80%98huge-success%E2%80%99-for-GM-IPO). 174Treasury maintains that it does not expect that the IPO will change the loss rate on the 

AIFP because Treasury had carried GM at book value on its books. Treasury conversations with 

Panel staff (Nov. 22, 2010). 175Panel staff estimates are derived from the amount of debt converted to equity divided by 

the common shares given to Treasury. 176Panel staff estimates. The break-even price includes underwriting commissions and discounts paid in order to sell Treasury’s common shares in the initial public offering (IPO) of GM 

in November. The break-even price also includes dividend and interest payments on the debt 

and preferred stock portion of Treasury’s investment, payments received from Motors Liquidation Company, GM Supplier program, and the premium paid to redeem its Series A preferred 

stock. 

have direct exposure to Old GM as a result of its $986 million loan 

to the company. 

iii. Taxpayers Likely to Suffer Some Losses on Their Investment in GM 

To date, Treasury has provided only aggregate data on projected 

losses across the auto sector, and it has not yet provided data on 

projected losses by each individual institution. On September 30, 

2010, Treasury estimated an overall loss of $14.7 billion to the government from federal support of GM, Chrysler, and GMAC/Ally Financial.172 Speaking more recently to the Automotive Press Association, Steven Rattner, former head of the Presidential Task Force 

on the Auto Industry, estimated Treasury’s loss exposure on the 

entire automotive rescue at less than $10 billion.173 While it is not 

clear precisely how much Treasury expects to lose on its GM investment specifically, its aggregate projections suggest that it envisions at least some losses on GM.174

Pricing the GM IPO far below the break-even price may have 

had the effect of greatly reducing the likelihood that taxpayers will 

be fully repaid, as full repayment will not be possible unless the 

government is able to sell its remaining shares at a far higher 

price. However, it is impossible to know if a longer-term investment horizon by the government (via an IPO at a later date) would 

have allowed Treasury to sell its shares at a more favorable price, 

closer to its break-even cost basis. Prior to the IPO, Treasury needed to sell each of its shares for an aggregate price of $44.59 in 

order to break even.175 After the initial public offering and the exercising of the over-allotment option by the underwriters, Treasury 

will need to sell its remaining stake—500,065,254 shares—for an 

average of $52.75 in order to recoup fully its investment.176 If one 

subtracts out the value of GM’s various dividend and interest payments to Treasury, the break-even share price rises to $54.28. 

However, the Panel recognizes that it is impossible to time the 

market, and that delaying the IPO would have exposed Treasury 

to the risk that the price that buyers were willing to pay for GM 

stock would fall. Moreover, as detailed in Section H.1, retaining the 

stock for a long period could have conflicted with the government’s 

stated objective of disposing of its shares ‘‘as soon as practicable.’’ 

There was also the possibility that a delay would have resulted in 

uncertainty in the market, as Treasury was concerned about how 


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177Treasury conversations with Panel staff (Nov. 22, 2010). 178 Estimating the likelihood and size of losses may be complicated by GM’s reporting practices. In its recent regulatory filings, the company disclosed that internal controls relating to 

its financial reporting may present a risk going forward. It stated that ‘‘[w]e have determined 

that our disclosure controls and procedures and our internal control over financial reporting are 

currently not effective. The lack of effective internal controls could materially adversely affect 

our financial condition and ability to carry out our business plan.’’ GM Form 424B1: Final Common Prospectus, supra note 96, at 30. Treasury maintains that it is comfortable with the sufficiency of the company’s reporting, that investors did not raise concerns about this issue during 

the roadshow, and that the company’s board and management are devoting time and energy to 

addressing the issue. Treasury conversations with Panel staff (Nov. 22, 2010). 179 Chrysler Group LLC, Chrysler Historical Timeline (online at www.media.chrysler.com/ 

newsrelease.do?id=2210&mid=) (accessed Jan. 11, 2011). 180Data provided by Chrysler (Jan. 11, 2011). 181See Section B for a description of the initial decision to support the automakers. 182Old Chrysler is used to refer to the automaker before June 10, 2009. The assets that did 

not carry over to New Chrysler, including the Chrysler name, remained in a company now 

known as Old Carco. 

Old GM bondholders—who received 10 percent of the stock in New 

GM—would exercise their rights in the wake of the restructuring.177 Aside from a delay, Treasury had two additional alternatives: to sell a smaller percentage of its holdings in an IPO and 

a larger portion in subsequent secondary offerings, or to use the 

IPO to dispose of as many shares as possible, no matter the price. 

While it is difficult to ascertain whether the government could 

have been more flexible in its timing, or whether a delayed 

timeline would have resulted in a higher return for taxpayers, the 

decision to sell a large number of shares below the break-even price 

decreased the chances that taxpayers will be repaid in full.178

E. Chrysler 

1. Context 

a. Background and the Government Intervention 

Chrysler, long the smallest of the ‘‘Big Three’’ U.S. automakers, 

first faced bankruptcy and turned to the U.S. government for help 

in the late 1970s. At that time, Chrysler petitioned for and received 

$1.5 billion in federal government loan guarantees. The loans were 

then repaid in 1983, ahead of schedule. In 1984, Chrysler introduced the minivan, which has remained a major source of sales for 

the company ever since. In 1987, Chrysler bought American Motors 

Corporation (AMC), including the Jeep brand, another important 

contributor to the company’s sales.179 In 1997, following several 

years of strong performance, Chrysler was acquired by DaimlerBenz of Germany for $37 billion, in what was the largest foreign 

takeover of a U.S. firm to that date. In 2007, after several years 

of losses, Daimler effectively paid for Cerberus Capital, a U.S. private equity fund, to assume control of Chrysler, in an 80–20 partnership. 

Following several years of losses, Chrysler faced imminent bankruptcy in late 2008, having lost $5.3 billion in the first three quarters of that year alone.180 Chrysler’s losses were due to its poor 

sales performance and high fixed costs. In December 2008, the 

Bush Administration announced that it would use the TARP to assist Chrysler.181 On January 2, 2009, Treasury loaned $4 billion to 

Chrysler Holdings, the parent of Old Chrysler,182 as a temporary 

measure, while Chrysler prepared a longer-term viability plan. The 

viability plan prepared by Chrysler was rejected by President 


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183The White House, Determination of Viability Summary: Chrysler, LLC (Mar. 30, 2009) (online at www.whitehouse.gov/assets/documents/Chrysler_Viability_Assessment.pdf). 184The White House, Obama Administration New Path to Viability for GM & Chrysler (Mar. 

30, 2009) (online at www.whitehouse.gov/assets/documents/Fact_Sheet_GM_Chrysler.pdf). 185Treasury Transactions Report, supra note 24. On April 29, 2009, an additional 

$280,130,642 was lent to Chrysler Holdings to support a Special Purpose Vehicle (SPV) for 

Chrysler’s warranties. 186Treasury Transactions Report, supra note 24; Chrysler Group LLC, Consolidated Financial 

Statements as of December 31, 2009 and for the Period from June 10, 2009 to December 31, 2009, at 20 (Apr. 21, 2010) (online at www.chryslergroupllc.com/pdf/news/2009_q4_year_end.pdf). Two 

billion dollars is due on December 10, 2011 and pays an interest rate of the London Interbank 

Offered Rate (LIBOR) plus 5 percent; this is referred to as the Tranche B loan. Of the remaining 

$4.6 billion, half is due on June 10, 2016 and the remainder on June 10, 2017. This remainder 

pays an interest rate of LIBOR plus 7.91 percent, and is referred to as the Tranche C Commitments. 187 U.S. Department of the Treasury, First Lien Credit Agreement Between Chrysler Group 

LLC and the U.S. Department of the Treasury (June 10, 2009) (online at 

www.financialstability.gov/docs/AIFP/ 

New%20Chrysler%20through%20Fourth%20Amendment.pdf); Treasury conversations with 

Panel staff (Dec. 22, 2010); Treasury Transactions Report, supra note 24. 188 U.S. Department of the Treasury, Amended and Restated Limited Liability Company Operating Agreement of Chrysler Group LLC, at 86 (June 10, 2009) (online at 

www.financialstability.gov/docs/AIFP/Binder1%20- 

%20Chrysler%20redacted%20corporate%20docs%20as%20posted%2012-09.pdf) (hereinafter 

‘‘Chrysler LLC Operating Agreement’’). 

Obama’s Auto Task Force on March 30, 2009, which concluded that 

Chrysler required a partner to achieve long-term viability.183 Fiat, 

the Italian automobile manufacturer, was selected to take management control of Chrysler.184 As detailed further below, in order to 

entice Fiat to take control of Chrysler’s management, Fiat was offered a path to majority ownership of the company through various 

agreements signed as part of the restructuring. Consequently, Fiat 

is very much in control of how Chrysler’s continued viability and 

valuation will evolve. 

As part of Chrysler’s pre-planned bankruptcy, Treasury provided 

financing that ultimately reached $3.8 billion, of which $1.9 billion 

was disbursed.185 To capitalize New Chrysler, which came into existence on June 10, 2009, Treasury provided an additional loan facility of $6.6 billion repayable in two tranches under the First Lien 

Credit Agreement.186 In addition, New Chrysler assumed $500 million of the $4 billion loaned to Chrysler Holdings, bringing the total 

face value of the Treasury loan exposure to New Chrysler to $7.1 

billion. Treasury has effectively written off $3.5 billion associated 

with its Chrysler investment. This total includes the $1.6 billion 

portion of the loan to Chrysler Holdings that was not assumed by 

New Chrysler due to bankruptcy law and financial reasons, as well 

as the entirety of the $1.9 billion in DIP financing.187 Treasury received a 9.8 percent equity stake in New Chrysler pursuant to the 

restructuring agreements.188

As with its other AIFP investments, Treasury’s current primary 

focus with respect to Chrysler is to recover the TARP funds it has 

provided to that firm. However, the manner in which the investment was structured limits Treasury’s ability to control the course 

of events at Chrysler. In addition to Fiat and Treasury, there are 

two other participants in the Chrysler restructuring: the UAW’s 

VEBA and the Canadian government. These actors have their own 

sets of interests and incentives, which adds an additional layer of 

complexity to the transaction and may further constrain Treasury’s 

ability to exercise its rights fully. Moreover, as detailed below, the 

complex and interrelated contractual arrangements involving the 


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189See Section E.3 for a detailed discussion. 

various parties make it difficult to assess the level of recovery for 

the taxpayers under various possible future scenarios, including a 

potential Chrysler IPO. 

The government is likely to recover the TARP loans provided to 

Chrysler directly,189 but any additional recovery will depend on 

when and under what conditions Treasury will be able to sell its 

equity stake. This section examines the structure of the government’s investment in Chrysler, as well as the most likely potential 

exit scenarios and their consequences. 

For a table summarizing the monies paid to the various Chrysler 

entities over time, see Figure 9 below. 

FIGURE 9: TARP INVESTMENTS IN CHRYSLER 

[Millions of dollars] 190

Original 

Investment 

Date 

Original 

Assistance 

Amount 

Original 

Investment 

Type 

Exchange 

Current 

Investment 

Type 

Cumulative 

Investment 

Amount 

Amount 

Repaid 

Amount 

Lost 

1/2/2009 ....... $4,000 Debt Obligation 

w/Additional 

Note.

$500 million assumed by New 

Chrysler on 

5/27/09.

Loan ...... $3,500 $1,900 $(1,600) 

4/29/2009 ..... 280 Debt Obligation 

w/Additional 

Note.

.............................. Loan ...... 280 280 

5/1/2009 ....... 1,888 Debt Obligation 

w/Additional 

Note.

.............................. Loan ...... 1,888 ................ 191 (1,888) 

5/27/2009 ..... 6,642 Debt Obligation 

w/Additional 

Note.

$500 million assumed by New 

Chrysler on 

5/27/09.

Loan ...... 192 7,142 

Total ............. $12,810 .............................. .............................. ............... $12,810 $2,180 $(3,488) 

190 Treasury Transactions Report, supra note 24. 191While Treasury does not account for this loan as a loss due to potential recoveries in the future, it has stated that it does not expect 

material returns. As of December 30, 2010, $48.1 million has been recovered from asset sales associated with this loan. Treasury Transactions Report, supra note 24. 192 As of September 30, 2010, $4.6 billion of this total has been drawn down and is outstanding. Chrysler Group LLC, Unaudited Interim 

Condensed Consolidated Financial Statements as of September 30, 2010 and for the Three and Nine Months Ended September 30, 2010, at 

15 (Nov. 8, 2010) (online at www.chryslergroupllc.com/pdf/business/q3_2010_financial_statements.pdf) (hereinafter ‘‘Chrysler Consolidated Financial Statements’’). 


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194This discussion does not reflect the impact of the January 10, 2011 announcement that 

Chrysler has met one of three incentive goals and thereby Fiat has increased its equity ownership position from 20 to 25 percent. Chrysler Group LLC, Chrysler Group LLC Meets First of 

Three Performance Events; Fiat Increases Ownership to 25 percent (Jan. 10, 2011) (online at 

www.media.chrysler.com/newsrelease.do?id=10453&mid=2) (hereinafter ‘‘Chrysler Meets First of 

Three Performance Events’’). 195 U.S. Department of the Treasury, Obama Administration Auto Restructuring Initiative 

(Apr. 30, 2009) (online at www.financialstability.gov/latest/tg_043009.html). For every three U.S. 

dollars that Treasury loaned Chrysler, the Canadian government loaned one Canadian dollar 

to the company. The U.S. dollar amount of the Canadian government loan has fluctuated over 

time with changes in the exchange rate between the U.S. and Canadian dollars. 196 Chrysler LLC Operating Agreement, supra note 188, at 86. 197 Chrysler Consolidated Financial Statements, supra note 192, at 11. 198 Chrysler LLC Operating Agreement, supra note 188, at 86. 199The White House, Obama Administration Auto Restructuring Initiative (Apr. 30, 2009) (online at www.whitehouse.gov/the-press-office/obama-administration-auto-restructuring-initiative) 

(hereinafter ‘‘Obama Administration Auto Restructuring Initiative’’). 200 Chrysler LLC Operating Agreement, supra note 188, at 86. 201 Chrysler LLC Operating Agreement, supra note 188, at 86. 202The Equity Subscription Agreement, The VEBA Call Option Agreement, The UST Call Option Agreement, The Equity Recapture Agreement, The Master Transaction Agreement, and The 

First Lien Credit Agreement were also signed on June 10, 2009 and collectively determine the 

interests, rights, and obligations of all the parties under the various possible scenarios. 

b. Current Ownership Structure and Possible Changes 

Chrysler is currently owned by four parties: Treasury, the Canadian Government, the UAW’s VEBA, and Fiat. Each of these parties contributed funds or resources to New Chrysler and received 

equity and/or debt claims on Chrysler in exchange for its contribution. Furthermore, several agreements between these four parties 

give specific parties the right to increase their equity stakes in 

Chrysler. In particular, Fiat has a variety of options to achieve majority ownership of the company. 

Fiat owns a 20 percent equity stake, along with management 

control of Chrysler, which it received in exchange for Chrysler 

gaining access to various Fiat technologies and Fiat’s international 

distribution networks.194 Fiat did not make any cash contribution 

in exchange for this equity stake in Chrysler. The Canadian government invested in New Chrysler, through a $2.2 billion loan,195

and received 2.5 percent of the equity.196 Also as part of the restructuring, the UAW’s VEBA took a note with a face value of $4.7 

billion,197 and 67.7 percent of the equity in New Chrysler,198 in exchange for various concessions on wages and benefits,199 and the 

assumption of responsibility for health care costs for retired UAW 

Chrysler workers. This initially left Treasury with the remaining 

9.8 percent of equity.200

The four equity owners of Chrysler are all party to the Amended 

and Restated Limited Liability Company Operating Agreement of 

Chrysler Group LLC (Operating Agreement), which governs how 

Chrysler is currently being strategically managed.201 This agreement, signed on June 10, 2009,202 contains numerous clauses that 

can lead to a change in Chrysler’s ownership structure. Several 

clauses give Fiat certain rights to increase its equity, while others 

grant certain rights to the other parties, including Treasury. These 

agreements work with each other, and actions by one party in some 

cases are necessary to trigger the right of other parties to exercise 

their respective options. Going forward, much will depend on 

whether and when a Chrysler IPO occurs. 


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203These performance targets are referred to as ‘‘Class B Events.’’ See Chrysler LLC Operating Agreement, supra note 188, at Section 3.4. 204This discussion does not reflect the impact of the January 10, 2011 announcement that 

Chrysler has met one of three incentive goals and thereby Fiat has increased its equity ownership position from 20 to 25 percent. Chrysler Meets First of Three Performance Events, supra 

note 194. 205Obama Administration Auto Restructuring Initiative, supra note 199. 206 Chrysler LLC Operating Agreement, supra note 188, at 86. 207This discussion does not reflect the impact of the January 10, 2011 announcement that 

Chrysler has met this incentive goal and thereby Fiat has increased its equity ownership position from 20 to 25 percent. Chrysler Meets First of Three Performance Events, supra note 194. 

All analyst reports on Fiat reviewed in Section E.2.c., for example, assume Fiat’s stake to be 

at least 35 percent. Chrysler has indicated that it believed the three targets would be reached. 

Chrysler Group LLC conversations with Panel staff (Dec. 8, 2010). 208 Chrysler LLC Operating Agreement, supra note 188, at Section 3.5. 

i. Fiat’s Options to Increase its Equity Share 

Fiat may increase its equity ownership in Chrysler in a number 

of ways. It is important to note, however, that Fiat may only acquire a controlling interest after Chrysler repays all TARP and Canadian government loans extended to it. First, the Operating 

Agreement provides that Fiat’s equity stake will increase by 5 percent if and when each of the following performance targets 203 is 

met: 

• Chrysler builds a 40 mile-per-gallon (MPG) car in the United 

States; 

• Chrysler builds a next-generation engine in a U.S. factory, 

based on Fiat technology; 204

• Fiat sells Chrysler vehicles through its international distribution network.205

If all three targets are met, then Fiat’s equity stake will increase 

by 15 percent, and it will own 35 percent of Chrysler’s equity— 

without having to make any payments to the other equity holders. 

As Fiat’s ownership share increases to 35 percent, that of the other 

three owners will be diluted; the VEBA will then directly own 55 

percent of the equity, Treasury 8 percent, and the Canadian government 2 percent.206

To date, the company has not met any of the targets that would 

trigger an increase in Fiat’s equity stake of New Chrysler. However, it is generally expected that these targets will ultimately be 

reached.207

In addition to meeting these performance targets, Fiat has other 

avenues to increase its equity ownership, providing the opportunity 

to gain majority control of Chrysler. The following options are 

available to Fiat: 

• Fiat has the right to increase its equity stake by up to 16 percent, under certain conditions, diluting the other three parties 

proportionally (the Incremental Equity Call Option).208 The exercise of this option may occur before, simultaneous to, or after 

a Chrysler IPO, provided that Chrysler has repaid the TARP 

and Canadian government loans. The price for this option is 

set at a market-based formulaic price prior to the IPO or a 

market price after the IPO. 

• Fiat also has a right to buy up to 40 percent of the VEBA’s 

equity stake at a market-based formulaic price prior to the IPO 


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209 VEBA Call Option Agreement (June 10, 2010). This option gives Fiat the right to buy up 

to 4.4 percent of Chrysler’s diluted equity (assuming all Class B events have occurred) no more 

than once every six months, starting July 1, 2012 and running until either (1) June 30, 2016, 

(2) 22 percent of the equity has been so purchased, or (3) the Treasury exercises its right to 

call the VEBA’s equity under the Equity Recapture Agreement. 210 U.S. Department of the Treasury, UST Call Option Agreement Regarding Equity Securities 

of New Carco Acquisition LLC, at 183 (June 10, 2009) (online at www.financialstability.gov/docs/ 

AIFP/Chrysler%20LLC%20Corporate%20as%20of%2012-01-10.pdf). 211 Id. at 183. The ‘‘dueling investment banks’’ method is as follows: both the buyer and seller 

select an investment bank to value the claim. If the two valuations are within 10 percent of 

each other, then the average is taken as the sale price. If the two estimates differ by more than 

10 percent, then a third investment bank is appointed and the average of the closest two valuations is used as the sale price. 212 U.S. Department of the Treasury, Equity Recapture Agreement, at 161 (June 10, 2009) (online at www.financialstability.gov/docs/AIFP/Chrysler%20LLC%20Corporate%20as%20of%2012- 

01-10.pdf) (hereinafter ‘‘Equity Recapture Agreement’’). The Equity Recapture Agreement also 

gives Treasury the right to receive payments in 2014, 2016, and 2018 from the VEBA based 

on the value of the option, if the Threshold Amount has not yet been reached at those dates. 213 Under the terms of the agreement, Treasury can buy the asset, the VEBA’s equity in 

Chrysler, at any time for the Threshold Amount, less any cash already received by the VEBA 

for Chrysler equity sold. However, an agreement between Treasury and the Canada Development Investment Corporation (CDIC) requires that 20 percent of any receipts to Treasury under 

the Equity Recapture Agreement be transferred to the CDIC. U.S. Department of the Treasury, 

April 30, 2009 Letter Agreement, at 178 (June 10, 2009) (online at www.financialstability.gov/ 

docs/AIFP/Chrysler%20LLC%20Corporate%20as%20of%2012-01-10.pdf). 214For example, if the equity valuation of Chrysler reaches a required multiple of the Threshold Amount (approximately $10 billion on January 1, 2012), then Treasury would be entitled 

to the benefit of 52 cents for each subsequent dollar increase in Chrysler’s valuation. In other 

words, should Chrysler succeed and be valued at such a level, or higher, Treasury would be the 

marginal beneficiary of 80 percent of the VEBA’s 55 percent equity interest (with CDIC owning 

or a market price after the IPO, subject to an adjustment for 

taxes (the VEBA Call Option).209

• Fiat has a right to buy any and all equity interest that Treasury may have in Chrysler (the Treasury Call Option).210 This 

option may be exercised by Fiat during the 12-month period 

following the repayment in full of all TARP loans at an exercise price equal to a market price in the event that a Chrysler 

IPO takes place, or using a ‘‘dueling investment banks’’ method 

to determine the price otherwise.211 Even though this agreement makes use of market prices in the event an IPO has happened, it nevertheless gives Fiat certain control over when 

Treasury could sell any remaining equity it might have. This 

could conflict with Treasury’s ability to maximize its return 

from the investment, because Fiat controls the timing of the 

event. 

ii. Treasury’s Rights 

The various options and rights granted to some of the parties in 

other agreements, beyond those mentioned above, mean that the 

current equity ownership percentages do not necessarily reflect the 

true economic interests of the various entities. One such agreement 

is the Equity Recapture Agreement, signed between Treasury and 

the UAW’s VEBA on June 10, 2009. This agreement entitles Treasury to all proceeds from the sale of any of the VEBA’s equity stake 

in Chrysler above a threshold amount, set at $4.25 billion and 

growing from January 1, 2010 at 9 percent per year (Threshold 

Amount).212 The agreement also gives Treasury the right to acquire the entirety of the VEBA’s equity stake for the then-applicable Threshold Amount.213 This means that if the equity valuation 

of Chrysler exceeds a certain level, then Treasury and not the 

VEBA would be the majority economic beneficiary of such an increase in valuation.214 As a practical matter, with the expiration of 


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20 percent of this interest), which would bring Treasury’s total economic interest in Chrysler 

to 52 percent, a majority. 215 U.S. Department of the Treasury, Troubled Asset Relief Program—Two year Retrospective 

(Oct. 2010) (online at www.financialstability.gov/docs/ 

TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf) (‘‘October 3, 

2010 marked the second anniversary of the Emergency Economic Stabilization Act that created 

the Troubled Asset Relief Program (TARP) and the end of the authority to make new financial 

commitments’’). 216See analysis in Section E. 

the TARP, Treasury does not currently have funds available to exercise its call option absent further congressional action to appropriate resources to Treasury’s Auto Industry Financing Program.215

As described above, Treasury will still passively benefit from any 

sales by the VEBA of its equity above the Threshold Amount, but 

in this case the VEBA will control the timing and volume of any 

sales. Hence, the expiration of the TARP may effectively preclude 

Treasury from following a more aggressive course of action to maximize the taxpayer’s return on their investment in Chrysler. A private investor would likely choose the more aggressive path to maximizing profits. However, as described further below, Treasury, as 

a government entity, is not merely an investor and has a number 

of competing policy priorities to take into consideration.216

The accompanying box shows the various claims on Chrysler and 

among the four parties at the present time. It also illustrates how 

Fiat and the other stakeholders are likely to exercise the options 

they hold going forward over the next two years. 


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217For exact figures, see Section E. 218 Chrysler Consolidated Financial Statements, supra note 192, at 2. 219 Chrysler Group LLC, Our Plan Presentation (Nov. 4, 2009) (online at 

www.chryslergroupllc.com/business/) (hereinafter ‘‘Chrysler Plan Presentation’’). 220 Chrysler Group LLC, Our Plan Presentation: Presentation 9—U.S. Network Development 

(Nov. 4, 2009) (online at www.chryslergroupllc.com/pdf/business/us_network_development.pdf). 221 Chrysler Group LLC, Chrysler Group LLC Celebrates Production Launch of All-new 2011 

Jeep® Grand Cherokee at Detroit Plant; Announces Second Shift (May 21, 2010) (online at 

www.chryslergroupllc.com/news/archive/2010/05/21/chrysler_celebrates_prod_launch_2011jgc_05212010). 222Data provided by Chrysler for full year 2010 worldwide sales (Jan. 10, 2011). 223 Chrysler Plan Presentation, supra note 219. 224 Chrysler Group LLC, Ram, Jeep Bring Home High Honors at Texas Truck Rodeo (Oct. 24, 

2010) (online at blog.chryslergroupllc.com/blog.do?id=1215&p=entry). 225 UBS Investment Research, Retail & Fleet Registrations Q3 2010, at 15 (Dec. 16, 2010). 226 Automotive News, Data Center (Instrument: U.S. light-vehicle sales by nameplate, Nov. & 

YTD) (Dec. 1, 2010) (hereinafter ‘‘Automotive News Data Center’’). 

2. Outlook 

a. Company Business Plan 

Chrysler has changed numerous aspects of its business as part 

of its emergence from bankruptcy and its new relationship with 

Fiat. It has restructured its brands, reduced its U.S. dealership 

network, introduced new models, improved its U.S. market share, 

reduced its capacity, and negotiated lower labor costs.217 Following 

initial cutbacks, Chrysler has recently begun to add employees. All 

of these actions, together, have returned Chrysler to operational 

profitability, although it continues to report net losses stemming 

from the interest expense on the TARP loans.218

On November 4, 2009, Chrysler unveiled its five-year business 

plan.219 Chrysler stated that it plans to have four brands—Dodge, 

Ram Trucks, Jeep, and Chrysler—but to have them sold through 

unified dealerships. Ram had been a sub-brand of Dodge for nearly 

30 years. Unlike GM, Chrysler has not closed any of its pre-bankruptcy brands, although Chrysler had only three brands pre-bankruptcy, compared to eight at GM. 

Like GM, Chrysler has reduced its number of dealers in the 

United States. The logic is that with fewer dealers, the remaining 

dealers will sell more vehicles, reach a higher level of profitability, 

and so be able to afford a greater level of investment in their dealerships. This investment, which Chrysler is pushing under the 

name ‘‘Project Genesis,’’ aims to create more customer-friendly 

showrooms.220

Chrysler has introduced several new models since emerging from 

bankruptcy on June 10, 2009. The most significant from a revenue 

perspective has been the new Jeep Grand Cherokee introduced in 

May 2010.221 This model has sold 66 thousand units to date.222

Discussions have begun to use the same underlying platform to 

produce a luxury SUV under Fiat’s Maserati brand.223 Chrysler is 

also preparing to launch the Chrysler 200, which will replace the 

Chrysler Sebring. The Ram truck brand has had some critical success, notably winning Texas Truck of the Year,224 but its sales performance has failed to match that of the GM and Ford pickup lines 

in 2010.225 Overall truck sales for Chrysler are up 13 percent for 

the first 11 months of 2010 as compared to the same period in 

2009. Equivalent sales, however, have increased 17 percent at GM 

and 22 percent at Ford for the same period.226 Chrysler’s minivan 

segment saw a revamped model introduced for model year 2011. 


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227 Id. As of November, 2010, Chrysler’s U.S. car market share was 5.1 percent, up from 4.3 

percent in 2009. On the other hand, Chrysler’s U.S. truck market share actually declined from 

14.4 percent in 2009 to 14.1 percent as of November 2010. 228 As of June 2010, the average transaction price was $27,300. Data provided by Chrysler 

(Jan. 10, 2011). 229The 2010 data includes information through November 2010. Automotive News Data Center, supra note 226. 230Data provided by Chrysler (Jan. 10, 2011). 231 Chrysler Group LLC, Our Plan Presentation: Presentation 16—Financial Review (Nov. 4, 

2009) (online at www.chryslergroupllc.com/pdf/business/financial_review.pdf) (hereinafter 

‘‘Chrysler Plan Presentation: Presentation 16—Financial Review’’). 232 Chrysler Group LLC, Chrysler Group LLC Selects Dealers to Represent Fiat Brand in the 

U.S. (Nov. 17, 2010) (online at www.media.chrysler.com/newsrelease.do?id=10325&mid=2). 

Figure 11 below shows the evolution over the last eight years of 

Chrysler’s sales in the United States, by far its largest market. The 

importance to Chrysler of the light truck segment, which includes 

the minivan, pickup, and SUVs, is clear, as this segment has consistently been responsible for the majority of Chrysler’s sales in the 

United States. Chrysler’s market share has seen a slight uptick in 

2010 year-to-date versus 2009, which has been driven by its performance in the car market.227 Additionally, Chrysler’s average transaction price has increased $1,900 since March 2009.228

FIGURE 11: CHRYSLER U.S. VEHICLE SALES BY SEGMENT, 2003 TO PRESENT 229

Operationally, Chrysler now has one fewer plant than it did prior 

to bankruptcy, but it should be noted that this reflects both the closure of four major plants offset by Chrysler’s purchase of a bankrupt supplier’s three factories.230 This capacity reduction, together 

with contractual changes that have reduced labor costs, has lowered the volume at which Chrysler breaks even to 1.65 million 

units.231

Fiat has also begun its efforts to re-enter the U.S. market. On 

November 17, 2010, Chrysler announced 130 dealerships that have 

been selected to sell Fiat vehicles.232 These dealerships will be distinct from the dealerships that sell the Chrysler family of vehicles, 

although some Fiat dealerships were sold to existing Chrysler dealers. Chrysler began building the Fiat 500, also known as the 


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233 Chrysler’s TARP loans have a weighted, based on carrying value, average effective interest 

rate of 9.36 percent. Chrysler Consolidated Financial Statements, supra note 192, at 12. 237 Chrysler Consolidated Financial Statements, supra note 192, at 12. 238 Chrysler Consolidated Financial Statements, supra note 192, at 15. In addition to the $500 

million in debt New Chrysler assumed from Old Chrysler, the company has drawn $4.6 billion 

of the $6.6 billion made available to the company on May 27, 2009, leaving $2.1 billion available 

for the company to draw down. 239 Chrysler Consolidated Financial Statements, supra note 192, at 12. 240 Chrysler Plan Presentation, supra note 219. 241 Chrysler Plan Presentation: Presentation 16—Financial Review, supra note 231. 242See footnote 259, infra, for a discussion of the ATVM loan program and Chrysler’s application for funds from the program. 243 Chrysler Consolidated Financial Statements, supra note 192, at 4. 

Cinquecento, in the fourth quarter of 2010, and will start selling 

the vehicles in North America in 2011. 

Since emerging from bankruptcy, Chrysler’s financial performance has been burdened by the significant and costly debt it still 

carries, much of it related to the TARP.233 Figure 12 below shows 

several key financial and operational metrics for Chrysler and how 

they have evolved before and after bankruptcy. 

FIGURE 12: CHRYSLER FINANCIAL AND OPERATIONAL RESULTS, MID-2007 TO Q3 2010 234

Period 

Vehicles 

Sold 

(000s) 

Vehicles 

Sold, U.S. 

(000s) 

Revenue 

(USD 

millions) 

Modified 

EBITDA 

(USD 

millions) 235

Net 

Income 

(USD 

millions) 

Cash 

Flow 

(USD 

millions) 

Employees 

at end of 

Period 

(000s) 

8/4/07 to 12/31/07 ................... 1,081 828 26,561 .................... (639) ................ 76 

2008 .......................................... 2,007 1,453 48,477 .................... (16,844) ................ 56 

1/1/09–6/30/09 236 .................... 656 471 11,082 .................... (4,425) ................ 50 

Q4 2009 ..................................... 318 216 9,434 398 (2,691) ................ 48 

Q1 2010 ..................................... 334 235 9,687 787 (197) 1,498 50 

Q2 2010 ..................................... 407 292 10,478 855 (172) 481 52 

Q3 2010 ..................................... 401 293 11,018 937 (84) 419 52 

234 Data provided by Chrysler (Jan. 11, 2011). 235 Chrysler Group LLC, Q3 2010 Results Review, at 4 (Nov. 8, 2010) (online at www.chryslergroupllc.com/ pdf/ 

business/q3_2010_webcast_presentation.pdf). 236 The following metrics for this time period are as of June 9, 2009: vehicles sold, revenue, and net income data. Data provided by Chrysler (Jan. 11, 2011). 

b. Government Exit Strategy 

Treasury currently has both debt and equity claims on Chrysler. 

Treasury’s total outstanding debt claims on New Chrysler, including additional notes and payment-in-kind interest considerations, 

have a total face value of $5.8 billion.237 Furthermore, Chrysler 

still retains the right to draw up to an additional $2.1 billion in 

funding pursuant to the original loan agreement.238 These loans 

are due to be paid back in tranches, with the last tranche due in 

2017.239 Given Chrysler’s efforts to refinance its TARP loans,240 its 

stated desire to repay the TARP loans by 2014,241 its pending application for loans from Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program (ATVM),242 and the 

continued positive cash flow from the automotive business,243 it is 

likely that all the loans extended to Chrysler under the TARP will 

be repaid, possibly in advance of the contractual due dates. Therefore, most of the uncertainty regarding Treasury’s financial return 

on the Chrysler intervention stems from the unpredictability of 

Treasury’s ultimate recovery from its equity stake. 

Plans for the sale of Treasury’s equity stake have not been formally divulged. Chrysler is currently a privately held company 

with no publicly traded equity against which to value Treasury’s 


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244 As of December 30, 2010, Treasury held 9.8 percent of the equity in Chrysler, but this will 

be diluted to 8 percent if and when Chrysler and Fiat meet the performance targets for Fiat’s 

increased equity stake. Treasury also has an effective economic interest in 80 percent of the 

VEBA’s 55 percent equity stake, see Section E.1.b.ii for details. 245For analysis of Treasury’s likely exit scenarios, see Section E.3, infra. 246 Bloomberg Data Service, Fiat May Increase Chrysler Stake to 51% Before IPO (Jan. 3, 

2011) (hereinafter ‘‘Bloomberg Data Service’’) (‘‘I think it is possible. I don’t know whether it 

is likely, but it is possible that we’ll go over the 50 percent mark if Chrysler decides to go to 

the markets in 2011,’’ Sergio Marchionne, 58, told reporters at the Milan stock exchange today. 

‘‘It will be advantageous if that happens.’’). 247 Chrysler LLC Operating Agreement, supra note 188 (see the Definitions Addendum). 248 Calculations were done based on the formula in the Operating Agreement, using third 

quarter 2010 (Q3 2010) financial results for Chrysler and other automotive manufacturers, as 

subsequently described. The average EV/EBITDA T12M (Enterprise Value to Earnings Before 

Interest, Tax, Depreciation, and Amortization on a Trailing 12 Month basis) (the market ‘‘multiple’’) for all Reference Automotive Manufacturers is 7.96 through Q3 2010. Excluding the 

outliers, as per the Operating Agreement formula, lowers the figure to 6.84, which is still higher 

than the Fiat EV/EBITDA T12M Multiple of 4.68 as of the end of the third quarter of 2010. 

Bloomberg Financial Service. 

Chrysler’s EBITDA in the 12 months prior to the end of the third quarter of 2010 were $2,977 

million ($398 million + $787 million + $855 million + $937 million). Chrysler Group LLC, 

Unaudited Interim Condensed Consolidated Financial Statements as of September 30, 2010 and 

for the Three and Nine Months Ended September 30, 2010, at 15 (Nov. 8, 2010) (online at 

www.chryslergroupllc.com/pdf/business/q3_2010_financial_statements.pdf); Chrysler Group LLC, 

Chrysler Group LLC Reports Financial Results for the Period Ended March 31, 2010 (Apr. 21, 

2010) (online at www.chryslergroupllc.com/news/archive/2010/04/21/2010_q1_press_release). Ap- plying the 4.68 Fiat Multiple to Chrysler’s EBITDA of $2,977 million yields an enterprise value 

of $13,932 million, less net debt of $3,766 million, which gives a total equity value for Chrysler 

of $10,166 million. The value to Treasury is the 9.8 percent of $10,166 million, or $1.0 billion 

Continued 

equity stake.244 Sergio Marchionne, the CEO of Chrysler and Fiat, 

has publicly stated that he expects to take Chrysler public via an 

IPO sometime in 2011. How much, if any, of Treasury’s stake could 

be sold at that point is unclear. The eventual monies received by 

Treasury for its investments in Chrysler will depend on Chrysler’s 

financial and operational performance, if and when Chrysler’s equity becomes publicly traded and, to a large degree, the actions of 

Fiat and the VEBA. If Chrysler’s equity does not immediately become publicly traded after the TARP loans get repaid, then the return on investment will depend to an even bigger extent on the actions of Fiat and could be lower as a result.245 In his most recent 

comments, the Fiat CEO has indicated that he considers it possible 

that Fiat will go over the 50 percent ownership mark in 2011.246

c. Valuing Chrysler’s Equity 

Determining an appropriate valuation for Chrysler’s equity, in 

the absence of trading of its equity on a public exchange, is difficult 

and involves a large amount of subjective assessment. However, 

there are ways of estimating a value: (1) the Operating Agreement 

contains a pricing formula for several of Fiat’s options to buy additional equity of Chrysler, and (2) equity research analysts who 

cover Fiat have estimated values for Fiat’s stake in Chrysler. 

Under most of these valuations, Treasury’s rights under the Equity 

Recapture Agreement have positive value. 

The Operating Agreement provides a valuation method to be 

used in the absence of public trading. The valuation is the product 

of the most recent four quarters’ earnings and a market-assigned 

‘‘multiple,’’ which relies on valuations of other comparable automobile manufacturers, and deducts the company’s debt according to 

certain rules.247 Applying that valuation methodology to Chrysler’s 

financial results for the third quarter of 2010 results in an estimate of Treasury’s equity stake in Chrysler of $2.8 billion.248


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for the direct equity, and approximately $1.8 billion for the proceeds to Treasury under the Equity Recapture Agreement. 249 Chrysler Group LLC, Chrysler Group LLC First Quarter (Q1) 2010 Financial Results Analyst Webcast, at 2 (May 10, 2010) (online at www.chryslergroupllc.com/pdf/business/ 

may10_presentation.pdf). 250 Chrysler LLC Operating Agreement, supra note 188 (see the Definitions Addendum). 251 Bloomberg Data Service. 252On April 21, 2010, Fiat announced its plans to ‘‘demerge’’ its industrial goods divisions 

from the automotive divisions. See Sergio Marchionne, Fiat Investor Day: The Five Year Plan 

(online at www.fiatgroup.com/en-us/mediacentre/press/Documents/2010/ 

THE%20FIVE%20YEAR%20PLAN%20-%20Adress%20from%20Sergio%20Marchionne.pdf) 

(accessed Jan. 11, 2011). Analysts predict this will further lower the overall multiple applied 

to Fiat. The Goldman Sachs Group, Inc., Breaking Up is Easy to Do; Reiterating Conviction Buy, 

at 32 (Sept. 24, 2010) (hereinafter ‘‘Goldman Sachs Paper on Fiat’’). A lower multiple for Fiat 

would further limit the implied valuation of Chrysler under the Operating Agreement. Fiat’s 

possible divestment of Ferrari would also lower the Fiat multiple. Barclays Capital, Fiat SPA— 

Crystallising Option Value—Move to 1–OW, at 8 (Dec. 7, 2010) (hereinafter ‘‘Barclays Capital 

Paper on Fiat’’). Treasury has not discussed this with any of the Operating Agreement parties, 

including Fiat. Treasury conversations with Panel staff (Nov. 28, 2010). 257 Chrysler Plan Presentation: Presentation 16—Financial Review, supra note 231. Chrysler 

has reiterated this plan in conversations with Panel staff. Chrysler conversations with Panel 

staff (Dec. 10, 2010). 

This result is very sensitive to the earnings period and the pool 

of comparable firms. In particular, earnings for the fourth quarter 

of 2009 were particularly bad for Chrysler.249 Further, the Operating Agreement provides that the multiple used for the valuation 

of Chrysler may not exceed Fiat’s multiple,250 which is currently 

the lowest in the industry.251 This effectively limits the implied 

valuation of Chrysler. And according to analyst reports, certain 

plans announced by Fiat will further lower Fiat’s—and in turn 

Chrysler’s—multiple,252 for the purposes of assessing how much 

Fiat must pay to acquire additional equity in Chrysler using several of the options it has. 

Equity analysts who cover Chrysler provide another source of 

valuation estimates. Figure 13 below shows the values attributed 

to Fiat’s stake in Chrysler in the most recent research notes published by four firms. 

FIGURE 13: ANALYST EVALUATIONS OF CHRYSLER EQUITY VALUE 

Firm Date 

Size of Fiat’s 

Equity Stake 

(Percent) 

Valuation of 

Fiat’s Stake 

(USD millions) 

Valuation of 

Chrysler 

Equity 

(USD millions) 

Goldman Sachs 253 .............................. Sept. 24, 2010 .................................... 35 2,857 8,162 

Kepler 254 .............................................. April 26, 2010 ..................................... 51 5,225 10,245 

Credit Agricole 255 ................................ April 23, 2010 ..................................... 35 4,319 11,459 

Deutsche Bank 256 ............................... April 22, 2010 ..................................... 35 0 0 

253 Goldman Sachs Paper on Fiat, supra note 252, at 32. Figures converted from Euros to U.S. dollars using the U.S. Treasury’s rate of exchange as of December 31, 2010. U.S. Department of the Treasury, Treasury Reporting Rates of Exchange (Instrument: Euro Zone—Euro) 

(accessed Jan. 11, 2011) (online at www.fms.treas.gov/intn.html#rates) (hereinafter ‘‘Treasury Reporting Rates of Exchange’’). 254 Kepler Research, Wishful Thinking, at 6 (Apr. 26, 2010). 255 Cheuvreux: Credit Agricole Group, A New Fiat in the Making, at 2 (Apr. 23, 2010) (online at 

www.borsaitaliana.it/bitApp/viewpdf.bit?location=/media/star/db/pdf/86353.pdf). Figures converted from Euros to U.S. dollars using the U.S. 

Treasury’s rate of exchange as of December 31, 2010. Treasury Reporting Rates of Exchange, supra note 253. 256 Deutsche Bank, The Great Divide—Initial Thoughts, at 3 (Apr. 22, 2010) (online at www.borsaitaliana.it/media/star/db/pdf/88399.pdf). 

As for the debt owed by Chrysler, as part of the five-year business plan announced on November 4, 2009, Chrysler detailed its 

plan to repay its obligations to Treasury, as well as those owed to 

the Canadian government.257 Chrysler projected repaying all TARP 

loans by the end of 2014. This would be several years in advance 

of when the loans mature. Chrysler’s desire to end its connection 

with the TARP ahead of time reflects its desire to achieve a cheapVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00058 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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258 Chrysler conversations with Panel staff (Dec. 10, 2010). 259The loans, under the Advanced Technology Vehicle Manufacturing (ATVM) program, 

charge an interest rate equivalent to Treasury’s cost of funds, which is lower than interest on 

the TARP loans. See U.S. Department of Energy, Advanced Technology Vehicles Manufacturing 

Incentive Program, 73 Federal Register 66721 (Nov. 12, 2008) (interim final rule). Based on the 

current difference between these interest rates, the cost savings to Chrysler, and the associated 

loss to Treasury, would be worth approximately $180 million per year. The ATVM loans have 

the potential to extend beyond 2017, the current date by which Chrysler must repay all of its 

obligations to the TARP. 260When Sergio Marchionne was asked about the use of ATVM funds on an analyst call he 

said: ‘‘As you well know, cash is fungible. So to the extent that we produce cash from operations, 

cash can be used, not to be redeployed in the investment cycle, but to go back and repay existing 

indebtedness. So at the end of the day, we need to have those funds [ATVM loans] targeted for 

capital and engineering and development efforts, but in the scheme of things, they will all end 

up in the same pot and how we use that cash to repay who is really up to Chrysler.’’ Chrysler 

Plan Presentation, supra note 219, at 61st minute. The Panel notes that if ATVM funds were 

used to repay TARP loans, this result would reflect policy choices made pursuant to the ATVM 

program and does not appear to violate either the terms of the ATVM program or the terms 

of EESA, even though it may raise concerns regarding Chrysler’s financial health. 261See Section E.2.b, supra, for a discussion. 262This figure is derived as follows: ($3.5 billion (amount written off on Old Chrysler and 

Chrysler Holdings loans)/8 percent (Treasury’s equity stake, assuming all three performance targets are met)). Consideration of the time value of money and/or the riskiness of the securities 

held by Treasury would push the break-even point higher. 263September 2009 Oversight Report, supra note 2, at 46. The difference is due to Chryslerrelated losses being lower than were expected in 2009. 

er source of financing going forward.258 However, the five-year business plan also projected that Chrysler would receive $3 billion 

in Department of Energy loans, $1 billion in each year from 2010 

to 2012.259

If Chrysler succeeds in meeting its five-year business plan, and 

with potential help from any Department of Energy loans extended 

to Chrysler, the TARP will have all the debt owed to it repaid by 

2014, in advance of Chrysler’s contractual obligations.260

3. Analysis of the Government’s Exit Strategy Based on 

Likely Repayment Scenarios 

For a successful government exit to be carried out, all TARP 

loans would need to be repaid, and Treasury would need to divest 

its equity stake in Chrysler and recover sufficient value to compensate the taxpayer for the Chrysler-related losses of $3.5 billion. 

As noted earlier, much will depend on Treasury’s ability to maximize its return from the sale of its equity stake and whether or not 

Chrysler has an IPO. 

Treasury currently has debt instruments outstanding to Chrysler with a total face value of $5.8 billion. Under the scenarios laid out 

above, Treasury is likely to recover the full amount of its outstanding TARP loans to Chrysler ahead of time whether or not an 

IPO occurs.261 In addition, Treasury has lost $3.5 billion on loans 

made to Old Chrysler. For Treasury to recover all the funds that 

it has invested in Chrysler, both Old and New, then all the loans 

have to be repaid, and Treasury’s equity stake would have to yield 

at least $3.5 billion to make up for the losses to date. Based on just 

the 8 percent of Chrysler’s equity that will be directly held by 

Treasury at the time of any potential sale, Chrysler would have to 

be valued at approximately $44 billion to cover the losses to 

date.262 This is roughly in line with the amount reported in the 

Panel’s September 2009 report, which calculated the break-even 

valuation of Chrysler at $57.5 billion.263 For comparison, when Chrysler was acquired by Daimler in 1998, it was valued at $37 

billion, which adjusted for inflation would equate to $49 billion 


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264This calculation uses Consumer Price Index data for May 1998 and October 2010. U.S. Department of Labor, Consumer Price Index: All Urban Consumers (Nov. 17, 2010) (online at ftp:// 

ftp.bls.gov/pub/special.requests/cpi/cpiai.txt). 265 Bloomberg Data Service. 266See Section E.1.b for an analysis of the various exit strategies and their respective costs 

and benefits to the taxpayers. 267For a discussion of Treasury’s rights to the VEBA’s equity, see Section E.1.b, supra. 

today.264 Prior to that acquisition, Chrysler had never been so 

highly valued.265

As discussed above, the Equity Recapture Agreement between 

Treasury and the VEBA may change the picture because of the additional economic interest it grants to Treasury. If Treasury were 

able to exercise fully its rights under this agreement, then Treasury’s stake would be a considerably larger share of Chrysler. This 

in turn would mean that it would be possible for the valuation of 

Chrysler to be significantly lower in order for the TARP to recoup 

fully its investment and maximize return for the taxpayers.266

Exact calculations are difficult as they depend on the date of sale. 

Assuming a January 1, 2012 sale date for the entire equity stakes 

of both Treasury and the VEBA, for example, Chrysler’s equity 

would have to be valued at approximately $14.5 billion for Treasury to recoup the $3.5 billion that it has lost on Chrysler-related 

loans to date, which would make it easier for Treasury to recover 

all of its investments in Chrysler. 

As noted above, Treasury does not currently have the ability to 

appropriate funds to acquire the VEBA’s equity. If Chrysler does 

well financially and the VEBA’s sales of equity reach the Threshold 

Amount, then any equity sales above that level will benefit Treasury.267 In this case, however, the VEBA and not Treasury will have 

control over the timing and execution of these sales. In addition, 

Fiat’s ability to control the timing of the exercise of its option to 

buy Treasury’s entire equity stake in Chrysler after repayment of 

the TARP loans could limit the ability of Treasury to recoup the 

maximum possible amount from its equity stake and its claims to 

the VEBA’s equity stake. 

Figure 14 below includes the key dates when the various rights 

take effect to facilitate the following discussion of possible repayment scenarios. 

FIGURE 14: CHRYSLER TIMELINE 

Date Event Source 

12/10/2011 ............ $2.08 billion of loan to Chrysler from Treasury is due; $500 million CAD from Canadian loan is also due.Chrysler Group LLC financial 

statements. 

7/1/2012 ................ VEBA Call Option activates, allowing Fiat to purchase up to 40 

percent of VEBA’s equity stake in Chrysler..

VEBA Call Option Agreement. 

1/1/2013 ................ Fiat’s Class B rights, the performance targets, expire; after this 

date Fiat may acquire a stake equivalent to that it could have 

acquired under the Class B rights, but by paying a price 

equivalent to that of the Incremental Equity Call Option—this 

is the Alternative Call Option.

Operating Agreement. 

1/1/2013 ................ Starting on this date, a simple majority, 51 percent, of Chrysler’s 

equity holders can force an IPO.

Operating Agreement. 

6/10/2016 .............. Half of the remaining balance on Treasury loans to Chrysler are 

due.

Chrysler Group LLC financial 

statements. 

7/1/2016 ................ VEBA Call Option expires .................................................................. VEBA Call Option Agreement. 

6/10/2017 .............. Remaining balance on Treasury loans to Chrysler are due ............. Chrysler Group LLC financial 

statements. 


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268See a summary of Treasury’s principles in Section H.1, infra. 269 Chrysler LLC Operating Agreement, supra note 188, at Section 14.1. Starting January 1, 

2013 a simple majority of Chrysler’s equity owners can force the company to have an IPO. 270 Chrysler Plan Presentation, supra note 219. 271 Chrysler Group LLC conversations with Panel staff (Dec. 9, 2010). 272 Chrysler Group LLC conversations with Panel staff (Dec. 9, 2010). 273The VEBA is unlikely to be able to dispose of its entire equity stake at once, but since 

Treasury gets the benefit of the VEBA sales above the Threshold Amount, it will be affected 

by the volume and timing of these sales. For a discussion see Section E.1.b. Treasury’s right 

to receive income from such sales survives its exit as a shareholder of Chrysler. Moreover, as 

noted above, if Treasury did increase its equity stake by exercising its rights under the VEBA 

option agreement, Treasury could realize a higher return on its investment. VEBA’s actions are 

not under Treasury’s control, but the Panel notes that the lack of resources for Treasury to exercise fully its rights may limit the level of return to the taxpayer. 

a. Possible Scenarios for a Sale of Treasury’s Equity 

Stake 

It appears that Treasury has a chance to recover some or all of 

the previously lost amounts through gains on the equity stake. 

Treasury is guided by a number of different principles for its involvement in private companies and, as with GM, it needs to balance its desire to exit as soon as practicable against its objective 

of maximizing the value of the taxpayers’ investment.268 The level 

of return Treasury can realize for the taxpayers, however, is uncertain at this point. In addition to unpredictable market developments, the complex nature of the restructuring transaction and the 

competing and potentially conflicting sets of interests among the 

parties may constrain Treasury’s freedom to act in the best interest 

of the taxpayers. As noted earlier, much will depend on the conditions under which Treasury and the VEBA will be able to dispose 

of their equity stakes. Two possible scenarios are described below. 

i. Large IPO Exit Scenario 

As discussed above, repayment in full of Chrysler’s government 

loans is a pre-condition for Fiat to gain majority control of the company. An IPO may happen whether or not Fiat has a majority ownership of Chrysler’s shares, but if Fiat can reach a 51 percent equity stake in Chrysler before January 1, 2013, it will have sole control over the timing of a Chrysler IPO.269 In Fiat’s second quarter 

2010 analyst call, its CEO stated that the priority for the IPO was 

to allow the VEBA to sell its stake in Chrysler for cash that it can 

use to invest and meet its obligations for the health care of the retired UAW workers.270 Chrysler also expects the other equity owners eventually to sell their stakes.271

An IPO would likely take place in late 2011 or 2012.272 Fiat 

would have the option to increase its equity stake to a majority by 

exercising the Incremental Equity Call Option either prior to or 

concurrently with the IPO. For this to happen, Chrysler would 

need to have repaid all of its government loans by that time. In a 

large IPO package scenario Fiat would exercise its option simultaneously with the IPO, and Treasury would be able to sell its entire 

direct equity stake at that time. The ultimate level of recovery for 

Treasury would depend on the market for Chrysler’s shares and, to 

some degree, on the VEBA’s actions.273

ii. Delayed IPO 

As discussed earlier, Fiat has a number of ways to increase its 

equity stake to a majority position, which can precede a Chrysler 


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274See Section E.1.b, supra. 275To prepay the TARP and Canadian government loans, Chrysler would need the approval 

of a simple majority of its Board of Directors. Assuming that all three performance targets are 

met, Fiat would only need the agreement of one more director, either the VEBA director, the 

Canadian director, or one of the three Treasury directors. Chrysler LLC Operating Agreement, 

supra note 188, at Sections 5.1 and 5.8. 276 Chrysler LLC Operating Agreement, supra note 188, at Section 3.5. This gives Fiat the 

right to buy 16 percent of the equity using either a public market price or the valuation formula 

described in E.2.c. This option can only be exercised once Chrysler has repaid the monies borrowed from the TARP and from the Canadian Government. Funds received by Chrysler for the 

Incremental Equity Call Option can be used simultaneously to repay the TARP loans. Recent 

reports from analysts covering Fiat indicate that Fiat may float some of its interest in Ferrari 

and Marelli, a parts supplier, ahead of a Chrysler flotation. A possible explanation for floating 

these two components of Fiat is to raise the necessary funds to exercise the Incremental Equity 

Call Option. 277 As described in Section E.2.c, supra, the Operating Agreement’s formula for the valuation 

of Chrysler uses a market ‘‘multiple’’ tied to that of Fiat, which is the lowest in the industry, 

to calculate the value of Chrysler. See footnote 248, supra, for a detailed discussion on the calculation of market multiples. 278 Barclays Capital Paper on Fiat, supra note 252, at 8. (‘‘We estimate a pre-IPO transaction 

could save Fiat between $1.0bn and $2.7bn compared to a post IPO deal. Adjusted for debt assumed by Fiat, we calculate ROI in a 40–100% range.’’); UBS Investment Research, Chrysler: 

Pre vs Post IPO Take-over, at 1 (Dec. 15, 2010) (hereinafter ‘‘UBS Investment Research Paper 

on IPO’’). 279 A similar logic applies to Fiat’s rights under the VEBA Call Option Agreement. VEBA Call 

Option Agreement (June 10, 2010). This also has implication for Treasury’s return due the Equity Recapture Agreement. Equity Recapture Agreement, supra note 212, at 161. 280 Bloomberg Data Service, supra note 246 (‘‘It looks cheaper for Fiat to get 51 percent of 

Chrysler before the IPO,’’ said Philippe Houchois, a London-based analyst at UBS AG, who estimates that Fiat could save $1 billion to $2.7 billion if it exercises the option before a Chrysler 

listing. ‘‘It’s a positive scenario for Fiat shares.’’). For analysis, see UBS Investment Research 

Paper on IPO, supra note 278, at 1. 

IPO.274 The main reason why Fiat may prefer to delay an IPO is 

to be able to have Chrysler repay its loans 275 and so allow Fiat to 

exercise the entire Incremental Equity Call Option more cheaply 

prior to an IPO.276 This would save Fiat a significant amount of 

money because instead of paying Chrysler market price for the new 

equity, it would be able to purchase the stake (and dilute the other 

shareholders) at a far lower cost based on a valuation methodology 

tied to inputs that could artificially lower Chrysler’s value as opposed to what the equity might sell for in an IPO.277 According to 

analysts, exercising the option prior to an IPO would mean up to 

a $2 billion savings for Fiat,278 which would translate into a corresponding loss for Chrysler. This in turn would lower the value of 

the company in a subsequent IPO and result in a loss for the other 

owners of Chrysler, including Treasury.279 The Fiat CEO’s most recent remarks implying that his company may go beyond a 50 percent ownership of Chrysler in 2011 has reinforced analyst opinions 

that Fiat would try to save money and acquire majority ownership 

by exercising the Incremental Equity Call Option prior to an 

IPO.280

The exit options available to Treasury underlie the fact that 

Treasury’s intervention in Chrysler was done in a distinct manner 

within the TARP by giving Fiat significant rights and benefits at 

the outset. The Panel notes that this may have saved Chrysler 

from dissolution, but the conflicting interests inherent in the structure of the intervention going forward may restrict Treasury’s ability to maximize return for the taxpayers as it unwinds the government’s ownership position. 


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281 Captive financing organizations can be structured as legally separate subsidiaries or distinct business lines, but they exist primarily as extensions of their corporate parents. Their purpose is to facilitate the parent corporation’s sale of goods or services by providing debt and/or 

lease financing to the parent’s customers. See Standard & Poor’s, Captive Finance Operations 

(Apr. 17, 2009) (online at www2.standardandpoors.com/spf/pdf/media/Captive_Finance_Operations.pdf). 282For further discussion concerning GMAC/Ally Financial’s diversification efforts, see March 

2010 Oversight Report, supra note 22, at 11–13. 283While GMAC/Ally Financial may no longer be a captive in the legal sense after it became 

an independent finance company in 2006, it maintains close ties with GM in many ways as a 

result of the contractual codification of its historical relationship with GM. For example, as part 

of the 2006 sale, GMAC/Ally Financial and GM entered into several service agreements that 

codified the mutually beneficial historic relationship between the companies. One of these agreements was the United States Consumer Financing Services Agreement (USCFSA), which, 

among other things, provided that GM would use GMAC/Ally Financial exclusively whenever 

it offered vehicle financing and leasing incentives to customers. (As described below, this agreement was modified when GMAC/Ally Financial became a bank holding company in December 

2008.) For further discussion of the USCFSA, see Section F.3.b, infra. GMAC/Ally Financial also 

remains the leading floorplan finance franchise for GM dealers. 284For further discussion concerning the factors that precipitated government assistance, see 

March 2010 Oversight Report, supra note 22, at 11–17, 32–42. 285GMAC LLC, GMAC Financial Services Reports Preliminary Third Quarter 2008 Financial 

Results (Nov. 5, 2008) (online at media.gmacfs.com/index.php?s=43&item=286). 

F. GMAC/Ally Financial 

1. Context 

a. Brief History of the Company 

For most of its history, GMAC Financial Services/Ally Financial 

was a wholly owned subsidiary of GM. As GM’s captive finance 

arm, GMAC/Ally Financial provided GM dealers with the financing 

necessary to acquire and maintain automobile inventories and to 

provide customers with a means to finance automobile purchases.281 Over time, the company’s operations expanded and diversified to include insurance, mortgages, commercial finance, and 

online banking.282 However, the decline in the last decade in GM’s 

credit rating negatively impacted GMAC/Ally Financial’s credit ratings and increased the cost of financing GM automobile sales. 

These circumstances, coupled with GMAC/Ally Financial’s branching out into other lending sectors outside the auto industry, called 

into question GMAC/Ally Financial’s ownership and governance 

structure. As a result, on November 30, 2006, GM sold 51 percent 

of the equity in GMAC/Ally Financial to an investment consortium 

led by Cerberus Capital Management, L.P. (Cerberus) for about 

$14 billion. GMAC/Ally Financial emerged as an independent global financial services company, but GMAC/Ally Financial’s operations continued to have many attributes of a captive finance arm’s 

relationship with an automaker.283

b. What Precipitated Government Assistance? 

A combination of factors led to the government’s decision to provide assistance to GMAC/Ally Financial.284 GMAC/Ally Financial 

reported a net loss of $2.5 billion for the third quarter of 2008,285

bringing its losses over five consecutive quarters to $7.9 billion. By 

late 2008, Residential Capital, LLC (ResCap), GMAC/Ally Financial’s global real estate finance business, was incurring debilitating 

losses due to the downturn in the housing market, especially due 

to its significant subprime mortgage exposure. Its automotive financing operations were severely weakened by the financial crisis 

and GM’s precarious situation, both of which constricted credit, 


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286For further discussion concerning GMAC/Ally Financial’s business and why it was failing, 

see March 2010 Oversight Report, supra note 22, at 11–17, 32–42. 287See March 2010 Oversight Report, supra note 22, at 57–78. 288 U.S. Department of the Treasury, Treasury Converts Nearly Half of Its Ally Preferred 

Shares to Common Stock (Dec. 30, 2010) (online at www.treasury.gov/press-center/press-releases/Pages/tg1014.aspx) (hereinafter ‘‘Treasury Converts Ally Preferred Shares to Common 

Stock’’). 

sharply reduced demand, and moved GMAC/Ally Financial closer 

toward insolvency.286

As detailed in the Panel’s March 2010 report, Treasury presents 

a two-fold justification for its intervention in GMAC/Ally Financial. 

First, Treasury states that it acted because of GMAC/Ally Financial’s significance to the automotive industry and to GM and Chrysler in particular. As Treasury considered using funds from the 

TARP to rescue GM and Chrysler in December 2008, it quickly 

came to the conclusion that GM could not survive without GMAC/ 

Ally Financial’s financial underpinning. In particular, GMAC/Ally 

Financial provided GM dealers with almost all of their ‘‘floorplan 

financing’’—that is, loans to purchase their inventory. Without access to this credit, many dealers would have been forced to close 

their doors. Second, Treasury states that it acted because of 

GMAC/Ally Financial’s inclusion in the stress tests, pursuant to 

which Treasury committed to provide funds for bank holding companies that could not raise funds privately.287 Over time, Treasury 

states that it approached the issue of continuing to support GMAC/ 

Ally Financial from the position that it must follow through on its 

commitments, even if the commitments are not legally enforceable, 

in order to maintain the credibility of the federal government. 

These rationales are circular, since GMAC/Ally Financial would not 

have been included in the stress tests had the government not intervened in December 2008 by expediting the company’s application for bank holding company status in order to prevent General 

Motors from liquidating. 

The particular issues associated with GMAC/Ally Financial’s 

near-collapse make this government intervention unique. As the 

Panel discussed in its March 2010 report, the solvency issue that 

the company faced in late 2008 owed to poor management decisions 

related to mortgage market investments that rapidly collapsed once 

the housing market downturn began. Furthermore, unlike the legacy shareholders and creditors of GM and Chrysler—companies 

that underwent restructuring via the bankruptcy process—the legacy stakeholders of GMAC/Ally Financial (for example, Cerberus) 

were rescued along with the company because the government 

opted not to place GMAC/Ally Financial into bankruptcy. 

c. Government Support Efforts 

The U.S. government has spent a total of $17.2 billion to support 

GMAC/Ally Financial under the TARP. Currently, after Treasury’s 

December 2010 conversion of $5.5 billion of its $11.4 billion in 

mandatory convertible preferred stock in Ally Financial into common stock, Treasury’s remaining investment consists of $2.7 billion 

in trust preferred securities (TruPS), $5.9 billion in mandatory convertible preferred stock, and a 73.8 percent common equity ownership stake.288 Conversion of Treasury’s remaining MCPs would inVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00064 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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289For further discussion concerning the government’s ‘‘staged’’ investments in GMAC/Ally Financial, see March 2010 Oversight Report, supra note 22, at 42–57. 

On December 29, 2008, Treasury purchased $5 billion in GMAC/Ally Financial Senior Pre- ferred Stock and also received warrants for an additional $250 million in preferred equity. Second, Treasury made an additional purchase of $7.5 billion of GMAC/Ally Financial Mandatory 

Convertible Preferred Stock on May 21, 2009, increasing its investment to $12.5 billion. Additionally, on May 29, 2009, Treasury accepted Old GM’s 35.4 percent equity stake in GMAC/Ally 

Financial in exchange for the $884 million loan given to Old GM in December 2008. Finally, 

Treasury authorized an additional investment of $3.8 billion in the form of $2.54 billion of Trust 

Preferred Securities (TruPs) and $1.25 billion of MCPs on December 30, 2009. At this time, $3 

billion of the initial December 2008 investment was converted to common stock, bringing Treasury’s control of GMAC/Ally Financial to 56.3 percent. 

In May 2009, the terms of the MCPs specified that GMAC/Ally Financial could convert the 

stock at any time, but if the conversion would result in Treasury owning more than 49 percent 

of the company, then GMAC/Ally Financial would need Treasury’s approval or an order from 

the Federal Reserve. The terms of this MCP were revised in exchange for Treasury’s additional 

investment in December 2009. After the December 2009 investment, GMAC/Ally Financial could 

only convert the MCPs if it received prior written approval from Treasury or an order from the 

Federal Reserve. As part of the terms of its December 2009 investment, Treasury also acquired 

‘‘a ‘reset’ feature on the entirety of its MCP holdings such that the conversion price under which 

its MCPs can be converted into common equity will be adjusted in 2011, if beneficial to Treasury, based on the market price of private capital transactions occurring in 2010.’’ U.S. Department of the Treasury, Treasury Announces Restructuring of Commitment To GMAC (Jan. 5, 

2010) (online at www.financialstability.gov/latest/pr_1052010.html) (hereinafter ‘‘Treasury Announces Restructuring of Commitment To GMAC’’). See also U.S. Department of the Treasury, 

Contract [GMAC], at 482 (May 21, 2009) (online at www.financialstability.gov/docs/AIFP/ 

Posted%20to%20AIFP%20Website%20-%20GMAC%202009.pdf) (‘‘The Series F–2 shall be convertible to common stock, in whole or in part, at the applicable Conversion Rate at the option 

of the holder upon specified corporate events, including any public offering of GMAC’s common 

stock, certain sales, mergers or changes of control at GMAC’’). This feature preserves Treasury’s 

ability to assess whether it is advantageous to Treasury to convert considering all the facts and 

circumstances available at the time. 

On December 30, 2010, Treasury announced it is converting $5.5 billion of its MCP holdings 

in GMAC/Ally Financial into common stock. See Treasury Converts Ally Preferred Shares to 

Common Stock, supra note 288. 

crease the government’s equity ownership in the company to approximately 82 percent. 

GMAC/Ally Financial received funds on three separate occasions: 

in December 2008, May 2009, and December 2009.289 The government’s support efforts are illustrated in Figure 15 below. 


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FIGURE 15: TARP INVESTMENT IN GMAC/ALLY FINANCIAL 

[Millions of dollars] 290

Original 

Investment 

Date 

Original 

Assistance 

Amount 

Original 

Investment Type Exchange Current Investment Type Cumulative Investment Amount Amount Repaid Amount Lost 

12/29/2008 ...... 5,000 Preferred Stock w/Exercised Warrants ........... Exchange for convertible preferred stock ...... Convertible Preferred Stock ............................ 291 $5,250 

12/29/2008 ...... 884 Loan to General Motors .................................. Extinguished in consideration for 35.4 percent of GMAC/Ally Financial common 

stock.

Common Stock ............................................... 884 

5/21/2009 ........ 7,500 Convertible Preferred Stock w/Exercised Warrants. $3 billion exchanged for common stock ....... Convertible Preferred Stock ............................ 292 7,875 

12/30/2009 ...... 2,540 Trust Preferred Securities w/Exercised Warrants. ......................................................................... Trust Preferred Securities w/Exercised War- rants. 2,667 12/30/2009 ...... 1,250 Convertible Preferred Stock w/Exercised Warrants. ......................................................................... Convertible Preferred Stock w/Exercised War- rants. 1,313 

Total ................ $17,174 ......................................................................... ......................................................................... ......................................................................... $17,989 

290 Treasury Transactions Report, supra note 24, at 18–19. 291 Includes exercised warrants. 292 Includes exercised warrants. 


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294Warrants for MCPs and Preferred Equity were immediately exercised and are included. 

Treasury Announces Restructuring of Commitment To GMAC, supra note 289; Treasury Transactions Report, supra note 24, at 18–19. 295 Although the third-party investors received their share in distributions from Cerberus, 

they are not Cerberus affiliates and will not necessarily act in concert with Cerberus. As part 

of the conditions to the approval of the BHC application, none of these third-party investors 

own, hold, or control more than 5 percent of the voting shares or 7.5 percent of the total equity 

of GMAC/Ally Financial. The Federal Reserve describes them as sophisticated investors who are 

independent of Cerberus and each other. Board of Governors of the Federal Reserve System, 

GMAC LLC; IB Finance Holding Company, LLC: Order Approving Formation of Bank Holding 

Companies and Notice to Engage in Certain Nonbanking Activities, Federal Reserve Bulletin, 

Vol. 95, Legal Developments: Fourth Quarter, 2008 (May 29, 2009) (online at 

www.federalreserve.gov/pubs/bulletin/2009/legal/q408/order6.htm). As private equity investors, 

none of these parties are required to disclose their identities publicly under applicable law, and 

Cerberus generally avoids the spotlight whenever possible. Cerberus Institutional Partners, 

L.P., Letter to Investors, at 6 (Jan. 22, 2008) (online at online.wsj.com/public/resources/documents/WSJ-LB-cerberus080214.pdf). 

FIGURE 17: TREASURY’S INVESTMENTS IN GMAC/ALLY FINANCIAL 294

While Treasury holds a controlling interest in GMAC/Ally Financial, lesser interests are held by General Motors, the GM Trust 

(which was established as part of GM’s bankruptcy and is managed 

by an independent trustee), the private equity company Cerberus, 

and third party investors, who purchased a portion of Cerberus’ 

legacy stake.295 The current ownership composition of GMAC/Ally 

Financial is illustrated in Figure 18 below. 


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296 Ally Financial Inc., Ally Financial Announces Conversion of Certain U.S. Treasury Investments into Common Equity (Dec. 30, 2010) (online at media.ally.com/index.php?s=43&item=438). 

FIGURE 18: GMAC/ALLY FINANCIAL’S CURRENT OWNERSHIP STRUCTURE (as of 12/30/ 

2010) 296

d. Current Company Structure 

Since the beginning of 2010, GMAC/Ally Financial’s operations 

have centered on three business segments: 

• Dealer and retail automotive financing services (including insurance for consumers, automotive dealerships, and other businesses); 

• Mortgage activities focusing primarily on the residential real 

estate market in the United States, with some international 

operations; this segment includes the operations of ResCap; 

and 

• Commercial finance activities that provide secured lending 

products and other financing. 


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297 Not reflected in this pie chart is the fact that the Corporate Segment recorded a $535 million loss for the third quarter of 2010. The Corporate segment is composed of the Commercial 

Finance Group, certain equity investments, other corporate activities, the residual impacts from 

corporate funds transfer pricing and treasury asset liability management activities, and reclassifications and eliminations between the reportable operating segments. Ally Financial Inc., Form 

10–Q For the Quarterly Period Ended September 30, 2010, at 80 (Nov. 9, 2010) (online at 

www.sec.gov/Archives/edgar/data/40729/000119312510252419/d10q.htm) (hereinafter ‘‘Ally Financial Form 10–Q’’). 298 Id. at 79. 299 Id. at 82, 94. 300 Ally Financial Inc., 3Q10 Earnings Review, at 3 (Nov. 3, 2010) (online at phx.corporateir.net/External.File?item= 

UGFyZW50SUQ9MzQ2Nzg3NnxDaGlsZElEPTQwMjMzOHxUeXBlPTI=&t=1) (hereinafter ‘‘Ally 

Financial 3Q10 Earnings Review’’). 301While GMAC/Ally Financial’s share of GM-subvented financing has declined from 76 percent in 2006 to 20 percent as of the third quarter of 2010, GMAC/Ally Financial’s share of 

Chrysler-subvented financing has increased since 2009, along with its shares of GM and Chrysler direct-to-consumer loans. 

FIGURE 19: THIRD QUARTER 2010 GMAC/ALLY FINANCIAL GROSS REVENUE BY 

SEGMENT 297

e. Recent Developments 

GMAC/Ally Financial is one of the world’s largest financial serv- ices companies with approximately $173.2 billion of assets as of 

September 30, 2010.298 The third quarter of 2010 marked the third 

straight profitable quarter for GMAC/Ally Financial (net income of 

$278 million), with all segments and entities profitable, including 

ResCap and Ally Bank, which is GMAC/Ally Financial’s online 

bank.299

According to its most recent quarterly earnings report, GMAC/ 

Ally Financial has made progress on several important fronts since 

the Panel last provided an in-depth examination of the company in 

its March 2010 oversight report.300 These recent developments are 

discussed in more detail below. 

First, GMAC/Ally Financial’s core auto finance business has now 

seen seven consecutive profitable quarters, primarily due to general 

improvement in the auto market and GMAC/Ally Financial’s increased penetration of both GM and Chrysler consumer auto originations.301

As Chrysler is also now increasing its U.S. market share in the 

wake of the Toyota recalls and a downsized GM, GMAC/Ally Financial has potential for further growth in this market. On April 30, 


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302GMAC LLC, GMAC Financial Services Enters Agreement to Provide Financing for Chrysler 

Dealers and Customers (Apr. 30, 2009) (online at gmacfs.mediaroom.com/ 

index.php?s=43&item=324). The April 2009 term sheet contemplated a more definitive agreement. 303 Ally Financial 3Q10 Earnings Review, supra note 300, at 3. 304 Ally Financial 3Q10 Earnings Review, supra note 300, at 17. 305 Ally Financial Inc., Ally Financial Completes Sales of European Mortgage Assets and Operations (Oct. 1, 2010) (online at media.ally.com/index.php?s=43&item=419). 306 Ally Financial Inc., Transcript: Q3 2010 Earnings Call, at 5 (Nov. 3, 2010) (hereinafter 

‘‘Ally Financial Transcript: Q3 2010 Earnings Call’’). 

2009, GMAC/Ally Financial entered into a legally binding term 

sheet with Chrysler to provide automotive financing products and 

services to Chrysler dealers and customers, which made GMAC/ 

Ally Financial the ‘‘preferred provider of new wholesale financing 

for Chrysler dealer inventory.’’ 302 On August 6, 2010, GMAC/Ally 

Financial entered into another agreement with Chrysler, which replaced and superseded the April 2009 term sheet. GMAC/Ally Financial is Chrysler’s preferred provider of new wholesale financing 

for dealer inventory in the United States, Canada, Mexico, and 

other international markets. Chrysler is obligated to provide 

GMAC/Ally Financial with certain exclusivity privileges, including 

the use of GMAC/Ally Financial for designated minimum threshold 

percentages of certain of Chrysler’s retail financing subvention programs. (A subvented loan is one where the auto manufacturer provides an incentive to the lender to offer a lower interest rate than 

it would otherwise offer.) The agreement extends through April 30, 

2013, with automatic one-year renewals unless either GMAC/Ally 

Financial or Chrysler provides sufficient notice of nonrenewal. In 

addition, GMAC/Ally Financial was named the preferred lender for 

Fiat in the United States on September 30, 2010 (owing to its existing relationship with Chrysler).303

While its North American operations have continued to drive results, the performance of GMAC/Ally Financial’s international operations has also improved. GMAC/Ally Financial is experiencing 

strong auto loan originations in China, Brazil, and the United 

Kingdom.304 With a continued focus on streamlining its auto business, GMAC/Ally Financial’s International Automotive Finance segment sold its Argentina auto finance business and signed an agreement to sell its Ecuador auto finance business during the third 

quarter of 2010. 

Second, after recognizing approximately $18.3 billion in mortgage-related losses during the 2007–2009 period, GMAC/Ally Financial continues to make progress in liquidating legacy mortgage 

assets at levels above their sharply reduced carrying value. During 

the third quarter of 2010, ResCap sold approximately $11.0 billion 

worth of European mortgage assets and businesses to affiliates of 

hedge fund and private equity firm Fortress Investment Group.305

This transaction means that GMAC/Ally Financial has effectively 

exited the European mortgage market. As of November 3, 2010, 

GMAC/Ally Financial sold $1.9 billion of held-for-sale legacy mortgage assets at gains. The company’s management believes that it 

has ‘‘effectively de-risked the mortgage business.’’ 306 GMAC/Ally 

Financial has stated that it is considering a number of strategic alVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00071 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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307 Ally Financial Inc., Form 10–Q for the Quarterly Period Ended June 30, 2010, at 10 (Aug. 

6, 2010) (online at www.sec.gov/Archives/edgar/data/40729/000119312510181437/d10q.htm); Ally 

Financial Form 10–Q, supra note 297, at 10–11. It does not appear, however, that GMAC/Ally 

Financial will completely dispose of ResCap, since it plans to shift its mortgage operations to 

focus on agency servicing and originations. 308See Ally Financial 3Q10 Earnings Review, supra note 300, at 3; Ally Financial Inc., 2Q10 

Earnings Review, at 26 (Aug. 3, 2010) (online at phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzI0MjM1M3xDaGlsZElEPTM5MTY3NXxUeXBlPTI=&t=1) 

(hereinafter ‘‘Ally Financial 2Q10 Earnings Review’’); GMAC Financial Services, Preliminary 

2010 First Quarter Results (May 3, 2010) (online at phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDQxMjF8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1); GMAC Financial Services, Preliminary 2009 Fourth Quarter Results (Feb. 4, 2010) (online at 

phx.corporate-ir.net/External.File?item= 

UGFyZW50SUQ9MjkzNTh8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1). 309 Ally Financial 2Q10 Earnings Review, supra note 308, at 28. Ally Financial Transcript: Q3 

2010 Earnings Call, supra note 306, at 1. During the third quarter 2010 earnings call, Mr. Carpenter stated that the company believes it has ‘‘become a fully-fledged bank holding company,’’ 

so it will no longer report on its progress relating to that objective anymore. 

ternatives with respect to ResCap, including asset sales, spin-offs, 

or other potential transactions.307

In response to questions concerning irregularities in foreclosure 

document procedures, which have raised questions about the validity of foreclosures and led to new uncertainties in the mortgage industry, GMAC/Ally Financial states that it continues to monitor 

closely delinquency and claims trends as well as new repurchase 

requests, entered into settlements with Freddie Mac and Fannie 

Mae in 2010 under which it made one-time payments to the GSEs 

for the release of repurchase obligations, and increased its reserve 

for mortgage repurchases during the third quarter of 2010. 

Finally, GMAC/Ally Financial continues to make progress in accessing the capital markets, improving its funding profile and reducing legacy costs. Ally Bank has taken on a more prominent 

funding role within the company. The bank’s deposits and certificate of deposit (CD) retention rate have increased, and the overall 

firm’s cost of funds has declined by over 100 basis points, or 1 percentage point, since becoming a bank holding company.308

2. Outlook 

a. Company Strategy/Business Plan 

A greatly improved market backdrop and a longer-term investment mentality on the part of Treasury, GMAC/Ally Financial’s 

principal shareholder, have facilitated a strategy aimed at repaying 

the government and cultivating a sustainable independent business 

strategy. At the beginning of 2010 (several months into the tenure 

of new CEO Michael A. Carpenter), GMAC/Ally Financial announced six objectives for the company, which include becoming the 

leading global auto finance provider for dealers and consumers, improving its liquidity position and access to the capital markets, reducing the risk in its mortgage operations, improving cost structure, and transitioning fully into a bank holding company.309

At a high level, GMAC/Ally Financial’s business plan is focused 

on achieving these six objectives, which are designed to position the 

company toward profitability and stability through a combination 

of higher earnings, reductions in balance sheet risk, the shedding 

of unproductive businesses, and improved access to the capital 

markets (at a lower cost of capital). The status of the company’s 

progress on each of these fronts is discussed in more detail below. 


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310 Ally Financial Transcript: Q3 2010 Earnings Call, supra note 306, at 1. This statistic reflects data for the first half of 2010. 311 Ally Financial 3Q10 Earnings Review, supra note 300, at 6. 312 Ally Financial 3Q10 Earnings Review, supra note 300, at 6. 313General Motors may elect to sponsor incentive programs (on both retail contracts and 

leases) by supporting financing rates below standard rates at which GMAC/Ally Financial purchases retail contracts. Subvention is the manner in which GM pays for exclusive promotions 

offered through GMAC/Ally Financial. This practice is akin to a marketing expense. 314 Ally Financial Transcript: Q3 2010 Earnings Call, supra note 306, at 9. 315 Ally Financial Transcript: Q3 2010 Earnings Call, supra note 306, at 3. 

Auto Finance. GMAC/Ally Financial has become the number 

one U.S. new car lender (according to AutoCount, an automotive industry data source), and the company expects to maintain that position.310 GMAC/Ally Financial’s auto finance franchise also has 

nearly three times the market share of its five largest competitors.311

GMAC/Ally Financial’s U.S. penetration for the third quarter of 

2010 currently stands as follows: 312

• 84 percent of GM dealer stock (as compared to 73 percent for 

the third quarter of 2009); • 76 percent of Chrysler dealer stock (as compared to 67 percent 

for the third quarter of 2009); • 34 percent of GM consumer sales (as compared to 32 percent 

for the third quarter of 2009); and • 49 percent of Chrysler consumer sales (as compared to 21 percent for the third quarter of 2009). 

While GMAC/Ally Financial is a leader in floorplan finance (as 

evidenced by the figures listed above), it states that it is also repositioning its auto finance franchise balance sheet to both reduce the 

scope of its subvented business with GM and to focus on a more 

balanced origination and leasing mix. See Figure 20 below.313

GMAC/Ally Financial has also increased its lending to consumers 

with super-prime and prime credit ratings, while reducing its nearprime and non-prime exposures.314 Going forward, one of GMAC/ 

Ally Financial’s major focuses will be to expand its presence in the 

used vehicle market, which is approximately twice the size of the 

new vehicle market in terms of volume,315 but where borrowers 

generally have weaker credit quality. 


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316 Ally Financial Form 10–Q, supra note 297. 317 Ally Financial 3Q10 Earnings Review, supra note 300, at 3. 318 Ally Financial 3Q10 Earnings Review, supra note 300, at 8. 319 Ally Financial 3Q10 Earnings Review, supra note 300, at 8. 

FIGURE 20: GMAC/ALLY FINANCIAL CONSUMER AUTO FINANCING VOLUME BY SECTOR 316

Access to Capital Markets. A core component of GMAC/Ally 

Financial’s viability going forward (and a precursor to an IPO) is 

its ability to access the capital markets. For calendar year 2010, 

GMAC/Ally Financial had completed approximately $36 billion of 

new secured, unsecured funding and asset-backed securities (ABS) 

transactions in 2010 (and excluding growth in deposits).317

Mortgage Operations. The company has completed a strategic review of its mortgage operations. Since it marked $2.0 billion in 

mortgage assets to fair value in the fourth quarter of 2009 (due to 

the reclassification of certain international mortgage assets and 

businesses and domestic mortgage assets from held-for-investment 

(HFI) to held-for-sale (HFS), and management’s intent to sell certain mortgage-related assets and thereby reduce volatility in 

GMAC/Ally Financial’s financial results), GMAC/Ally Financial has 

made continued progress in reducing its legacy mortgage risk. The 

remaining mortgage assets are predominantly non-economic exposures and assets supporting its agency origination and servicing 

business.318 As reflected in Figure 21 below, the total assets in 

GMAC/Ally Financial’s mortgage operations portfolio have declined 

from $147 billion to $41 billion (with $20.5 billion remaining at 

ResCap) between 2006 and the end of the third quarter of 2010, 

while the slight uptick seen in asset values over the course of 2010 

reflects the improved market backdrop for mortgage assets.319


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320 Ally Financial Form 10–Q, supra note 297. 321 Ally Financial Transcript: Q3 2010 Earnings Call, supra note 306. 322 Ally Financial Transcript: Q3 2010 Earnings Call, supra note 306. 323 If Treasury were to convert its remaining $5.9 billion of MCPs prior to an IPO at the same 

conversion terms used in the December 2010 conversion (i.e., same conversion price and conversion ratio), its common equity ownership percentage would increase to 81.7 percent. 324Treasury conversations with Panel staff (Nov. 18, 2010). 

FIGURE 21: RESCAP AND MORTGAGE OPERATIONS ASSETS 320

Ally Bank. With respect to increasing the importance of Ally 

Bank within the overall company’s funding structure, Ally Bank increased its deposit base by $1.8 billion in the third quarter (a 29 

percent increase, year-over-year) and achieved an 88 percent CD 

retention rate. Banking operations now comprise 29 percent of 

GMAC/Ally Financial’s total funding.321 GMAC/Ally Financial expects that Ally Bank will continue to expand to represent a greater 

proportion of GMAC/Ally Financial’s funding over time. 

Cost Reductions. GMAC/Ally Financial has also made progress 

with respect to its objective of reducing controllable expenses by 

approximately $600 million during 2010. Its quarterly expenses for 

the third quarter of 2010 were $146 million less than those of the 

prior year period.322

b. Government Exit Strategy 

As discussed above, Treasury’s outstanding investment in 

GMAC/Ally Financial is $17.2 billion, which includes $5.9 billion in 

MCPs, $2.7 billion in TruPs, and 73.8 percent of the common equity of GMAC/Ally Financial.323

Treasury has identified four tasks with which GMAC/Ally Financial must continue to demonstrate progress in order for any government exit strategy to be successful.324 First, GMAC/Ally Financial 

must demonstrate consistent access to secured and unsecured funding sources. Second, GMAC/Ally Financial must demonstrate a consistent track record of profitability. Third, GMAC/Ally Financial 

must mitigate market concerns regarding the risk related to its 

mortgage operations. Finally, GMAC/Ally Financial must be able to 

demonstrate to equity investors that its bank franchise will continue to grow at an attractive rate. 


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325TruPs have elements of both common equity and debt, are senior to all other common equity of GMAC/Ally Financial, and have no contractual restrictions on transfer (other than requirements that certificates bear certain legends and other similar restrictions set forth in the 

Declaration of Trust for the Trust), while MCPs, which are convertible at the Federal Reserve’s 

option, would require conversion before they can be marketed. See Treasury Announces Restructuring of Commitment To GMAC, supra note 289; U.S. Department of the Treasury, Decoder 

(online at www.financialstability.gov/roadtostability/decoder.htm) (accessed Jan. 11, 2011); U.S. 

Department of the Treasury, The Treasury Capital Assistance Program and the Supervisory 

Capital Assessment Program, Joint Statement by Secretary of the Treasury Timothy F. 

Geithner, Chairman of the Board of Governors of the Federal Reserve System Ben S. Bernanke, 

Chairman of the Federal Deposit Insurance Corporation Sheila Bair, and Comptroller of the 

Currency John C. Dugan (May 6, 2009) (online at www.financialstability.gov/latest/tg91.html); 

GMAC, Inc., Summary of Trust Preferred Securities and Warrant Terms (May 21, 2009) (online 

at financialstability.gov/docs/AIFP/Posted%20to%20AIFP%20Website%20- 

%20GMAC%202009.pdf). 326 U.S. Department of the Treasury, Office of Financial Stability Agency Financial Report: 

Fiscal Year 2009, at 40 (Dec. 10, 2009) (online at www.treasury.gov/about/organizational-structure/offices/Mgt/Documents/OFS%20AFR%2009_24.pdf) (hereinafter ‘‘OFS FY2009 Agency Financial Report’’); Treasury conversations with Panel staff (Nov. 18, 2010). 327OFS FY2009 Agency Financial Report, supra note 326, at 44. Given that Treasury currently holds 73.8 percent of GMAC/Ally Financial’s common equity, it is likely to take one to 

two years following the IPO for Treasury to dispose completely of its ownership stake. Treasury 

conversations with Panel staff (Jan. 5, 2011). 328 Congressional Oversight Panel, Testimony of Timothy F. Geithner, secretary, U.S. Department of the Treasury, Transcript: COP Hearing with Treasury Secretary Timothy Geithner (Dec. 

16, 2010) (online at cop.senate.gov/hearings/library/hearing-121610-geithner.cfm) (publication 

forthcoming). 329 Id. 330Treasury Converts Ally Preferred Shares to Common Stock, supra note 288. 331Treasury conversations with Panel staff (Jan. 5, 2011). 

As with Chrysler (and until recently with GM) Treasury’s stake 

in GMAC/Ally Financial—common, TruPs, and MCPs 325—is fundamentally illiquid. Accordingly, Treasury’s large common stock position in GMAC/Ally Financial, a non-public company, can be sold 

only in private sales unless and until GMAC/Ally Financial 

launches an IPO. Hence, the U.S. government’s exit strategy for 

GMAC/Ally Financial relies primarily upon an IPO tentatively 

scheduled, per GMAC/Ally Financial management, for 2011. Treasury intends to sell its interests in a timely and orderly manner that 

‘‘minimizes financial market and economic impact,’’ under what it 

determines to be appropriate market conditions.326 Consistent with 

its approach overall, Treasury’s goal is to ‘‘dispose of the government’s interests as soon as practicable consistent with EESA 

goals.’’ 327 When asked at the Panel’s recent hearing about the 

timetable for a GMAC/Ally Financial IPO, Secretary Geithner stated that it would happen ‘‘[a]s quickly as we can do it,’’ emphasizing 

that Treasury is ‘‘going to move as quickly as we can to replace the 

government’s investments with private capital, take those firms 

public, and figure out a way to exit as quickly as we can. And we’re 

working very hard with the management and board of Ally to 

achieve that outcome.’’ 328 While noting that he does not know how 

soon the IPO will happen, Secretary Geithner stated that ‘‘it’s 

going to be much sooner than we thought six months ago.’’ 329

As it has done with its stake in Citigroup, and as it plans to do for its stake in AIG, Treasury recently converted $5.5 billion of its 

MCP interest (nearly half of its preferred shares) into common 

stock.330 In addition to providing more clarity on the government’s 

equity stake (and potential shareholder dilution), Treasury’s conversion also helps GMAC/Ally Financial in two significant ways.331

First, as a result of the conversion and the consequent dilution of 

the equity interest in GMAC/Ally Financial held by or on behalf of 

GM, the Federal Reserve has determined that Ally Bank and GM 


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332Transactions between Ally Bank and GM will, however, continue to be subject to regulation 

and examination by the bank’s primary federal regulator, the Federal Deposit Insurance Corporation. Ally Financial Inc., Form 8–K (Dec. 30, 2010) (online at www.sec.gov/Archives/edgar/ 

data/40729/000119312510291571/d8k.htm). 

After it became a bank holding company, GMAC/Ally Financial requested on two occasions 

that the Federal Reserve Board grant Ally Bank an exemption from Section 23(a) of the Federal 

Reserve Act. Section 23(a) restricts the amount of ‘‘covered transactions’’ between a bank and 

its affiliates. According to the Federal Reserve Board, the ‘‘twin purposes of section 23(a) are 

(i) to protect against a depository institution suffering losses in transactions with affiliates and 

(ii) to limit the ability of an institution to transfer to its affiliates the subsidy arising from the 

institution’s access to the federal safety net.’’ Board of Governors of the Federal Reserve System, 

Transactions Between Member Banks and Their Affiliates, 67 Fed. Reg. 76560, 76560 (Dec. 12, 

2002) (final rule). The safety net consists of deposit insurance, the Federal Reserve’s discount 

window, and other banking regulatory tools designed to protect financial markets and participants. 

Section 23(a), however, authorizes the Board to grant an exemption if it finds that doing so 

is in the public interest and consistent with the statute’s purposes. 12 U.S.C. § 371c(f)(2); 12 

CFR § 223.43(a). On December 24, 2008, the Board granted GMAC/Ally Financial’s request for 

an exemption for retail loans, and on May 21, 2009, it granted GMAC/Ally Financial’s extended 

request for an exemption for both retail and dealer loans. 

For further details and discussion concerning Section 23(a) of the Federal Reserve Act and 

GMAC/Ally Financial’s receipt of Section 23(a) waivers, see March 2010 Oversight Report, supra 

note 22, at 23–25. 333 In the company’s view, the Section 23(a) limitations were impacting their business with 

GM. GMAC/Ally Financial conversations with Panel staff (Jan. 5, 2011). 334 In addition to seeking an improved capital structure prior to the company’s efforts to market itself to investors, Treasury also stated that were other factors that influenced the timing 

of its December 2010 conversion. First, by year-end 2010, GMAC/Ally Financial had demonstrated a track record of overall profitability for three consecutive quarters. Second, GMAC/ 

Ally Financial made headway in reducing the risk in its mortgage portfolio during 2010. By 

year-end 2010, GMAC/Ally Financial had entered into settlements with Fannie Mae and Freddie 

Mac to resolve potential repurchase exposure related to mortgage loans sold to the GSEs. In 

addition, the company sold its European mortgage operations, representing approximately $11.0 

billion of assets. Treasury conversations with Panel staff (Jan. 5, 2011). 335 According to JPMorgan Chase, if Treasury converts its GMAC/Ally Financial preferred 

stake into common equity, GMAC/Ally Financial should be able to lower its leverage as preferred dividends could decline by $1 billion. A conversion of some or all of Treasury’s preferred 

stake into common equity should likely ‘‘further improve Ally’s leverage ratios in the event of 

an IPO.’’ J.P. Morgan, North America Credit Research, Ally Financial Inc.: 3Q10 Preview (Nov. 

1, 2010) (hereinafter ‘‘Ally Financial 3Q10 Preview’’). 

will no longer be treated as ‘‘affiliates’’ for purposes of Sections 

23(a) and 23(b) of the Federal Reserve Act, which, among other 

things, impose limitations on transactions between banks and their 

affiliates.332 Since Ally Bank is a source of cheap financing in part 

because it is the beneficiary of federal deposit insurance, it is 

cheaper and more cost-effective for GMAC/Ally Financial to use its 

bank as the core piece of its auto finance operations. This Federal 

Reserve decision will allow GMAC/Ally Financial to use Ally Bank 

to fund an increasing amount of GM retail and dealer loans.333 Second (and, according to Treasury, the more important ramification), 

the conversion was intended to strengthen GMAC/Ally Financial’s 

capital structure by increasing the proportion of equity in the form 

of common stock (and, therefore, conforming GMAC/Ally Financial’s 

equity account to that more typical of a bank holding company and 

improving its leverage ratios). This factor largely determined the 

timing of Treasury’s conversion, as Treasury determined it would 

be beneficial to allow the company to conform its capital structure 

to that of a more typical bank holding company before it starts to 

market itself to investors ahead of an upcoming IPO.334

The conversion helps GMAC/Ally Financial raise equity in the 

capital markets in the future, and improves GMAC/Ally Financial’s 

ability to raise debt financing as loss-absorbing common equity increases.335 GMAC/Ally Financial’s management is pleased with the 

timing and terms of Treasury’s conversion and believes that there 

are no other steps the government would need to take before the 


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336While investor confidence and interest in an IPO has presumably been increased because 

the recent conversion provides some reassurance to the markets that Treasury does not intend 

to retain its ownership stake in GMAC/Ally Financial over the long term, some investors might 

be hesitant to buy shares that could later be substantially diluted through a conversion by the 

government. 

As part of the terms of Treasury’s December 2010 conversion, GMAC/Ally Financial also 

agreed to assist Treasury in the sale of a portion of its holdings of TruPs on terms acceptable 

to Treasury and GMAC/Ally Financial as soon as practical, subject to certain conditions. 

GMAC/Ally Financial’s working assumption is that the company will redeem Treasury’s remaining MCPs as part of the IPO, meaning that GMAC/Ally Financial will need to raise additional equity to pay back Treasury. GMAC/Ally Financial conversations with Panel staff (Jan. 

5, 2011). 337Treasury conversations with Panel staff (Nov. 18, 2010). 338Treasury conversations with Panel staff (Nov. 18, 2010). 339Treasury conversations with Panel staff (Nov. 18, 2010). 340Treasury conversations with Panel staff (Jan. 10, 2011). Treasury requested that the identity of the 35 companies be withheld. 341The book value of a company, in this instance, is the difference between a company’s assets 

and its liabilities. The market capitalization is broadly defined as the dollar value of a company. 342 Bloomberg Data Service; SNL Financial. This analysis is based on GMAC/Ally Financial’s third quarter 2010 total asset figure of $173.2 billion, its total liabilities of $152.2 billion and 

its implied book value, the difference between assets and liabilities, of $21.0 billion. The analysis 

uses the price-to-book ratios of the 35 comparables and averages the results for each trading 

day for the full-year 2010. The implied trading ranges for the comparables are as follows: low 

estimate (102 percent), median estimate (113 percent), average estimate (114 percent), and high 

estimate (132 percent). 343 As discussed in Section B.1.d, Treasury has converted or exchanged $9.4 billion (both a 

loan and preferred stock) of its investment in GMAC/Ally Financial for the 73.8 percent equity 

stake it currently holds, therefore valuing Treasury’s common interests in the company above 

company pursues an IPO. It remains too early, however, to speculate on the impact of this transaction on an IPO and Treasury’s 

exit strategy because Treasury still retains $5.9 billion in MCPs 

and $2.7 billion in TruPS.336 At this time, Treasury’s strategy for 

the disposition of those interests remains unclear. 

Alternatively, Treasury has noted that it would be impossible to 

rule out a sale of GMAC/Ally Financial.337 The company would entertain any bids that might come in, and Treasury, as the majority 

shareholder, would have a significant influence on any discussions 

and the decision on whether to accept such a bid.338 Treasury has 

stated, however, that only a small number of institutions could digest an acquisition of this magnitude, so this course of action appears less feasible than an IPO exit strategy.339

As part of its exit strategy, Treasury should ensure that legacy 

private sector stakeholders in GMAC/Ally Financial do not see any 

return until U.S. taxpayers recoup their entire investment. 

c. Valuing GMAC/Ally Financial’s Equity 

Since GMAC/Ally Financial is a private company, and its business platform is unique, it is difficult to conduct a clear analysis 

of its current value. As comparables, Treasury currently uses for 

the GMAC/Ally Financial valuation 35 publicly traded companies 

across the bank, thrift, and specialty lender sectors.340 Through an 

analysis of the market performance of these comparables, by using 

the average price-to-book value for this imperfect peer group, it is 

possible to estimate a market capitalization for GMAC/Ally Financial.341 During 2010, the 35 comparable firms traded between 102 

and 132 percent of their book value. Applying this range of multiples to GMAC/Ally Financial—with a reported book value of $21 

billion as of the third quarter of 2010—values the equity of the entire firm between $21.4 billion and $27.7 billion.342 Hence, this 

methodology values the Treasury’s 73.8 percent equity stake between $15.8 billion and $20.4 billion.343 However, as noted, this is 


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the amount it invested to receive those interests. This does not, however, account for the remaining debt instruments Treasury holds in the company, or the difficulty in liquidating such 

a large equity position. 344GMAC/Ally Financial conversations with Panel staff (Dec. 6, 2010). 345Treasury conversations with Panel staff (Nov. 18, 2010). 

a crude yardstick given that GMAC/Ally Financial has a differentiated business model focused on the auto finance sector. Further, 

the company’s book value calculation is likely to change before an 

IPO. 

In conversations with Panel staff, Mr. Carpenter and other senior officers from GMAC/Ally Financial’s management stated that 

its public offering, if priced at or near book value, could help facilitate the conversion of the Treasury’s remaining MCPs, which 

would help the company ultimately repay the government in 

full.344 As Figure 22 below illustrates, the average price-to-book of 

Treasury’s 35 comparables has recovered dramatically from its 

2009 trough and has remained above 100 percent for the entirety 

of 2010. The performance of these comparables, which are used by 

Treasury’s Office of Financial Supervision (OFS) to monitor the 

value of its investments,345 appears to be positive for GMAC/Ally 

Financial, signaling a market perception at this time that comparable companies are valued at a multiple high enough to provide 

for full Treasury repayment. While the comparables show a positive trend in the market valuation of their businesses, there is a 

clear disparity between the performance of the broader universe of 

Treasury comparables and that of a more specifically tailored peer 

group, which may provide a closer—but still imperfect—representation of the value of GMAC/Ally Financial. As demonstrated in Figure 22 below, the average price-to-book ratios of the nation’s four 

largest banks (Bank of America, JPMorgan, Citigroup, and Wells 

Fargo), as well as CIT Group, a large specialty lender, have traded 

within a relatively narrow band over the past 12 months, underperforming a larger universe of financial firms. As of December 31, 

2010, the price-to-book ratio of those five larger financial sector 

companies was 25 percent lower than that of the universe of smaller companies. 


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346 Bloomberg Data Service. Note that Large Cap Comparables refers to Bank of America, 

Citigroup, Wells Fargo, JPMorgan Chase, and CIT Group. 347Treasury conversations with Panel staff (Nov. 18, 2010). 348 Noting that although there is no company that is a perfect match against which to measure GMAC/Ally Financial’s prospects, Treasury is nonetheless pleased with the general improvements in valuation of companies that are at least somewhat comparable to GMAC/Ally Financial. Treasury conversations with Panel staff (Nov. 18, 2010). 

FIGURE 22: PRICE-TO-BOOK RATIO OF GMAC/ALLY FINANCIAL COMPARABLES 346

3. Analysis of Intended Exit Strategy 

a. The Timetable for Treasury’s Exit Strategy 

As discussed above, GMAC/Ally Financial has taken steps to 

mitigate some of the poor management decisions made in the past 

(most notably with respect to the company’s substantial mortgage 

market exposure). As economic conditions have improved, the potential for Treasury to recoup its investment increased as market 

prices for capital transactions improved throughout 2010. In recent 

conversations with Panel staff, Treasury representatives have expressed confidence about the progress the company has made over 

the course of 2010 and the prospects for the taxpayers to be repaid 

pending the completion of an IPO. 

Treasury pointed to three key developments that underscore 

their optimism.347

• First, they noted the improvements in the company’s liquidity 

profile, with approximately $30 billion of new secured and unsecured funding transactions and an increase in the number of 

deposits at Ally Bank. • Second, they noted that the outlook for GMAC/Ally Financial 

has become more favorable as the valuations for financial companies have increased since the early part of 2010.348

• Finally, Treasury discussed how the company’s core business 

has remained profitable for three consecutive quarters. 

Treasury’s cause for optimism on both the company’s progress 

and an upcoming IPO, however, might be premature. As discussed 

above, the Panel notes that the valuations for financial companies 

have not improved as much as Treasury stated. It is likely that 

mortgage market valuations have had the biggest impact on 


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349On the day prior to the announcement—December 29, 2010—GMAC/Ally Financial’s 5-year 

CDS spread was 270.9 basis points and Ford Motor Credit’s was 218.5 basis points. On January 

5, 2011, these metrics were 230.8 and 214.1 basis point, respectively. Bloomberg Data Service. 

GMAC/Ally Financial (largely as a result of the company’s efforts 

to stem the bleeding at ResCap). While GMAC/Ally Financial has 

now had three consecutive quarters of overall profitability, this 

likely owes more to the improvements in the ResCap mortgage 

portfolio than to anything else. 

Moreover, with respect to GMAC/Ally Financial’s improved liquidity, an analysis of GMAC/Ally Financial’s five-year credit default swap (CDS) spreads, a market indicator of perceived risk of 

a company’s default, provides insight into the market’s perception 

of the company’s health. Using Ford Motor Credit (FMCC), a better 

capitalized company without the same degree of mortgage exposure, as a comparable provides a basis of comparison. The movement in GMAC/Ally Financial’s CDS spread illustrates the dramatic improvement in market sentiment towards the company following the announcement that the Treasury would provide assistance to the company on December 29, 2008. The 14.8 percent decline in GMAC/Ally Financial’s CDS spread between December 30, 

2010 and January 5, 2011, as compared to the 2.0 percent decline 

in Ford Motor Credit’s CDS spread during the same period, further 

demonstrates the improvement in market opinion following Treasury’s conversion of $5.5 billion of preferred interests in GMAC/Ally 

Financial into common stock.349 However, the current low spreads 

on its CDS, and its position relative to Ford Motor Credit—a company with a stronger balance sheet—show that GMAC/Ally Financial is apparently still benefitting from the support provided by 

Treasury as well as a market belief that the support will remain 

intact for the foreseeable future (which helps it secure funding at 

a lower cost). 


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350 Bloomberg Data Service. 351Treasury conversations with Panel staff (Nov. 18, 2010). See also Ally Financial Form 10– 

Q, supra note 297, at 80. 

FIGURE 23: CREDIT DEFAULT SPREADS ON GMAC/ALLY FINANCIAL AND FORD MOTOR 

CREDIT 350

b. Key Variables/Risks Going Forward that Might Impact the Exit Strategy and Government Returns 

As with its ownership stakes in GM and Chrysler, there are certain variables and risks associated with Treasury’s ability to divest 

its ownership stake in GMAC/Ally Financial successfully. As detailed below, the exit strategy timetable for GMAC/Ally Financial 

is somewhat complicated because the company’s outlook is tied substantially to two key sectors—the auto industry and mortgage market—and the outlook for both remains uncertain. A successful exit 

strategy will, however, continue to depend upon positive—and improving—earnings as well as greater clarity about the company’s 

medium-term strategy to grow Ally Bank, manage the GM relationship, maintain a mortgage portfolio with a more conservative risk/ 

reward calculus, and seize other growth opportunities. Since a public offering is the most likely method for recovery of taxpayers’ 

money, if GMAC/Ally Financial experiences delays or obstacles in 

accessing the equity capital markets, this will prolong Treasury’s 

involvement as a shareholder and could potentially impact GMAC/ 

Ally Financial’s ability to repay its government assistance. 

i. Performance of U.S. Auto Retail Market 

Given how the largest percentage of GMAC/Ally Financial’s net 

revenue during the third quarter of 2010 was related to North 

American auto finance, GMAC/Ally Financial faces the classic 

monoline concentration risk—it is a company that focuses primarily on operating in one specific financial area. The company’s 

viability and future profitability are, therefore, intimately tied to 

the performance of the U.S. retail auto market.351

On one hand, GMAC/Ally Financial’s efforts to increase lending 

to consumers with super-prime and prime credit ratings (while reVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00082 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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352See Section C.5, supra. 353Decreased consumer confidence in the economy is driving more people to purchase used 

cars, putting increased pricing pressure on a limited supply of vehicles. Inventory is low due 

to the current shortage of lease returns and trade-ins for vehicles of this type. 354 Ally Financial 2Q10 Earnings Review, supra note 308, at 7. However, there is room for 

competition between the two in the leasing market, as the economy recovers, and some lease 

programs may be more suitable to a captive financier. 355 Ally Financial 2Q10 Earnings Review, supra note 308, at 7. 

ducing its near-prime and non-prime exposures), as discussed 

above, have resulted in higher quality originations that will likely 

minimize the risk of delinquencies and necessitate lower loss provisions (at least in the short term). Additionally, it might be at least 

somewhat prudent for a company to have such a disproportionate 

exposure to the auto finance business, since this asset class category is very attractive from a risk point of view, and has been one 

of the most resilient asset classes in the banking business. 

On the other hand, however, the global auto industry is highly 

cyclical and sensitive to changes in consumer sentiment, employment, gasoline prices, interest rates, and general economic activity.352 GMAC/Ally Financial’s focus on this sector—and its continued close relationships with GM and Chrysler—concentrates the 

risk to GMAC/Ally Financial of any decline in the automotive industry. The success of GMAC/Ally Financial’s auto finance franchise (and, in large part, that of GMAC/Ally Financial as a company), therefore, in large part depends upon credit quality and the 

pace of auto sales growth, which is tied to the rate of economic recovery, consumer sentiment, and the outlook for housing and employment in the United States. Further, GMAC/Ally Financial’s 

prior major effort at diversification (albeit under an earlier management team) beyond the automotive industry, ResCap, was clearly not successful. While GMAC/Ally Financial has started to focus 

on building a presence in the used-car sector, where prices are currently at an all-time high,353 it is unclear what level of revenue 

this sector will generate for GMAC/Ally Financial going forward, 

but it will become less valuable if prices decline. 

ii. Relationship with GM 

GM recently acquired AmeriCredit, an auto finance company with total assets of $10 billion, to meet customer demand for leasing and non-prime financing for GM vehicles. GMAC/Ally Financial’s auto finance franchise focuses on prime retail and dealer financing, while AmeriCredit focuses on subprime retail financing 

exclusively.354 If GM changes AmeriCredit’s business model and 

expands its financing operations, however, GMAC/Ally Financial 

would lose some of its GM market share to AmeriCredit. While 

GMAC/Ally Financial continues to emphasize how it maintains an 

‘‘important, mutually beneficial relationship’’ with GM,355 GM’s acquisition of AmeriCredit raises the question as to whether GMAC/ 

Ally Financial will continue to be uniquely positioned to serve GM 

dealers and customers. 

GMAC/Ally Financial’s current relationship with GM is shaped 

by the shared historical relationship between the two entities since 

1919. Until 2006, GMAC/Ally Financial was a wholly owned subsidiary of GM, functioning as GM’s captive financing arm with the 

interests of both entities very closely aligned. As part of the 2006 


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356GMAC LLC, Form 10–K for the Fiscal Year Ended December 31, 2008, at 40 (Feb. 27, 2009) 

(online at www.sec.gov/Archives/edgar/data/40729/000119312509039567/d10k.htm) (hereinafter 

‘‘GMAC Form 10–K’’). 357 Id. at 40. 358 Id. at 40. 359 Id. at 40. These amendments include the following: 

(1) The parties agreed that for a two-year period (until 2011), GM could offer retail financing 

incentive programs through an alternative financing source under certain conditions. Following 

that two-year period, GM would be able to offer any incentive programs on a graduated basis 

through alternative financing sources, along with GMAC/Ally Financial, provided that the pricing satisfies certain requirements. 

(2) The parties agreed to eliminate the requirement that GMAC/Ally Financial satisfy certain 

lending and underwriting targets in order to remain the exclusive underwriter of special promotional loan programs offered by GM. GM offered GMAC/Ally Financial the right to finance 

these special programs for retail consumers for a five-year period. 

(3) The parties eliminated the exclusivity arrangement with respect to promotional programs 

for GM dealers, and this change will be phased out over time. 

(4) The parties agreed that GMAC/Ally Financial would no longer have an obligation to lend 

to a particular wholesale or retail customer, provide operating lease financing products, or be 

required to pay a penalty or receive lower payments or incentives for refusing to lend to a customer or for failing to satisfy individual or aggregate lending targets. GMAC/Ally Financial can 

also make loans to any third party and will use its own underwriting standards in making 

loans, including GM-related loans. 360See, e.g., GMAC Form 10–K, supra note 356, at 162; GMAC, Inc., Form 10–K for the Fiscal 

Year Ended December 31, 2009, at 43–44 (Mar. 1, 2010) (online at www.sec.gov/Archives/edgar/ 

data/40729/000119312510043252/d10k.htm) (hereinafter ‘‘GMAC Form 10–K’’). 361 Industry analyst conversations with Panel staff (Nov. 16, 2010). 362 Industry analyst conversations with Panel staff (Nov. 16, 2010). 

sale, GMAC/Ally Financial and GM entered into several service 

agreements that ‘‘codified the mutually beneficial historic relationship between the companies.’’ 356 One of these agreements was the 

United States Consumer Financing Services Agreement (USCFSA), 

which provided that GM would use GMAC/Ally Financial exclusively whenever it offered vehicle financing and leasing incentives 

to customers.357 The parties agreed to maintain this relationship 

for 10 years. As consideration for this arrangement, GMAC/Ally Financial pays GM an annual exclusivity fee and agrees to meet 

specified targets with respect to consumer retail and lease 

financings of new GM vehicles. On December 29, 2008, after the 

Federal Reserve approved GMAC/Ally Financial’s application to become a bank holding company, GM and GMAC/Ally Financial 

agreed to modify certain terms and conditions of the USCFSA.358

The modified USCFSA is in effect until December 24, 2013, but 

certain provisions terminate in January 2011.359 In addition, the 

subvention agreements between GM and GMAC/Ally Financial 

have been continued through these contractual agreements.360

These contractual modifications mean that GMAC/Ally Financial 

will be engaging in a sizeable renegotiation with its biggest operating partner in the near future. While the USCFSA relates mainly 

to subvented GM financing, GMAC/Ally Financial’s share of which 

is proportionately less important now than what it once was, it is 

likely that before GMAC/Ally Financial can pursue an IPO, potential investors would like further clarification on GMAC/Ally Financial’s relationship with GM going forward, especially given how 

critical GMAC/Ally Financial’s relationships with GM dealers and 

customers are to its balance sheet.361 This may include a renegotiated operating agreement between GM and GMAC/Ally Financial 

that would explicitly prevent AmeriCredit from overtaking GMAC/ 

Ally Financial’s floorplan and consumer financing, at least for the 

indefinite future.362


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363 Although a substantial loss in GM business would have a meaningful impact on GMAC/ 

Ally Financial’s ongoing viability because the company’s auto finance platform has not yet undergone sufficient diversification, it is likely that an unwinding of GM’s relationship with 

GMAC/Ally Financial would happen over the long term, which would allow for the impact of 

the loss to be spread over a period of time. 364 Industry analyst conversations with Panel staff (Dec. 3, 2010). 365March 2010 Oversight Report, supra note 22, at 108–109. 366The Panel also notes that GM might be further incentivized to form its own new captive 

finance company (or build AmeriCredit’s platform) because it is beneficial to have a finance arm 

particularly during very tough markets, as it provides some protection if other lenders walk 

away. Industry analyst conversations with Panel staff (Nov. 10, 2010). 

While GM’s AmeriCredit acquisition does not pose a near-term 

threat to GMAC/Ally Financial’s business, it could represent a 

longer-term strategy by GM to grow its own captive financing arm 

organically.363 GM currently benefits from its relationship with 

GMAC/Ally Financial because Ally Bank (as a federally insured depository institution) has a lower cost of capital than captive finance 

companies such as Ford Motor Credit, leading some industry analysts to conclude that this remains an excellent arrangement for 

GM.364 As the Panel stated in its March 2010 report, however, ‘‘it 

would not be unreasonable for a potential equity investor to question whether [GMAC/Ally Financial]’s relationship with GM is designed to serve GM’s rather than [GMAC/Ally Financial]’s shareholders’ interests.’’ 365 In that context, GMAC/Ally Financial’s noncaptive status subjects it to greater risk from GM: the relationship 

could sour, and GMAC/Ally Financial could lose its preferred provider role, and/or GM could, in fact, form its own, new captive finance company.366 If any of this were to happen, investor enthusiasm for a potential GMAC/Ally Financial IPO might be dampened, absent any evidence of other tangible growth opportunities. 

GMAC/Ally Financial has become the preferred finance company in 

the United States for Saab, Suzuki, Thor Industries (the world’s 

largest manufacturer of recreational vehicles), and Fiat over the 

course of 2010, but it is unclear how much business these relationships will generate for GMAC/Ally Financial going forward, and it 

appears that current revenue projections are fairly small. An IPO 

requires a prospective investor to believe either that GMAC/Ally 

Financial’s relationship with GM is sufficiently stable to sustain it 

as a separate company, or that GMAC/Ally Financial can expand 

adequately (through growth strategies for Ally Bank, Chrysler, 

other automotive companies, the used car market, or otherwise) to 

handle the risk of a reduced relationship with GM. The public equity markets have never had an opportunity to evaluate this question, and their assessment remains unknown. 


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367Data from GMAC/Ally Financial. 368 House Financial Services, Subcommittee on Housing and Community Opportunity, Written 

Testimony of Thomas Marano, chief executive officer, Mortgage Operations, Ally Financial Inc., 

Robo-Signing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage Servicing, at 1 

(Nov. 18, 2010) (online at financialservices.house.gov/Media/file/hearings/111/Marano111810.pdf) 

(hereinafter ‘‘Thomas Marano Testimony’’) (stating that GMAC Mortgage ‘‘is currently the fifth 

largest residential mortgage servicer in the United States . . . ’’). 369See Congressional Oversight Panel, November Oversight Report: Examining the Consequences of Mortgages Irregularities for Financial Stability and Foreclosure Mitigation, at 7– 

8 (Nov. 16, 2010) (online at cop.senate.gov/documents/cop-111610-report.pdf) (hereinafter ‘‘November 2010 Oversight Report’’). 370 Ally Financial 3Q10 Earnings Review, supra note 300, at 10. 371 Ally Financial 3Q10 Earnings Review, supra note 300, at 10. 

FIGURE 24: GMAC/ALLY FINANCIAL’S AUTO FINANCE LOAN ORIGINATIONS THROUGH 

DECEMBER 20, 2010 (PERCENT OF UNITS ORIGINATED) 367

iii. Turmoil in the Mortgage Market 

GMAC Mortgage, a subsidiary of GMAC/Ally Financial, is the 

fifth largest U.S. mortgage servicer.368 As the Panel discussed in 

its November 2010 report, in the fall of 2010, reports began to surface of problems with foreclosure documentation.369 GMAC Mortgage announced on September 24, 2010 that it had identified irregularities in its foreclosure document procedures, which have raised 

questions about the validity of some of its foreclosures. GMAC/Ally 

Financial temporarily suspended evictions and foreclosure sales by 

GMAC Mortgage in 23 states during September after an employee 

testified that he signed foreclosure documents without ensuring 

their accuracy. 

These developments raise two important issues: (1) the validity 

of some of GMAC Mortgage’s foreclosures given the irregularities 

in its documentation procedures; and (2) the amount of exposure 

GMAC/Ally Financial could face from mortgage repurchases. 

With respect to the first issue, as of November 3, 2010, GMAC 

Mortgage has reviewed 9,523 foreclosure affidavits and, where necessary, has re-executed some.370 Fewer than 15,500 additional affidavits are being reviewed and, when necessary, will be remediated.371 According to GMAC/Ally Financial, the review has shown 

‘‘no evidence of inappropriate foreclosure to date,’’ and GMAC 

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372 Ally Financial 3Q10 Earnings Review, supra note 300, at 10. See also Thomas Marano Testimony, supra note 368, at 1. 373 In March 2010, GMAC/Ally Financial’s subsidiaries, GMAC Mortgage and Residential 

Funding Company, LLC, made a one-time payment to Freddie Mac for the release of repurchase 

obligations relating to mortgage loans sold to Freddie Mac prior to January 1, 2009. The release 

does not cover any of GMAC/Ally Financial’s potential repurchase obligations related to mortgage loans sold to Freddie Mac after January 1, 2009 or GMAC/Ally Financial’s potential repurchase obligations related to ‘‘private-label’’ mortgage securities (mortgage loans sold to private 

institutions) to be securitized. This agreement also does not cover any of GMAC/Ally Financial’s 

obligations with respect to loans where its subsidiary Ally Bank is the owner of the servicing. 

Ally Financial Form 10–Q, supra note 297, at 77. 

On December 27, 2010, GMAC/Ally Financial announced that ResCap and certain ResCap 

subsidiaries reached a settlement with Fannie Mae for the release of repurchase obligations relating to mortgage loans sold to Freddie Mac. The agreement covers loans serviced by GMAC 

Mortgage on behalf of Fannie Mae prior to June 30, 2010, and all mortgage-backed securities 

that Fannie Mae purchased prior to the settlement, including private-label securities. ‘‘The settlement was for approximately $462 million and releases ResCap and its subsidiaries from liability related to approximately $292 billion of original unpaid principal balance (and $84 billion 

of current UPB) on these loans.’’ ResCap and Fannie Mae also reached an arrangement with 

respect to ‘‘ResCap’s payment of mortgage insurance proceeds where mortgage insurance coverage is rescinded or canceled.’’ This agreement does not cover other contractual obligations that 

ResCap has with Fannie Mae (e.g., those that may arise in connection with mortgage servicing), 

and excludes Ally Bank. Ally Financial Inc., Ally Financial’s Mortgage Subsidiaries Reach Agreement With Fannie Mae on Repurchase Exposure (Dec. 27, 2010) (online at media.ally.com/ 

index.php?s=43&item=437). 374 Ally Financial 3Q10 Preview, supra note 335. Based upon assumptions of delinquency rates, put-back rates, put-back acceptance, and loss severity on the $310.6 billion of loans originated by GMAC/Ally Financial during 2006–2008, JPMorgan Chase estimated in November 

2010 that mortgage put-backs will cost the company $1.4 billion of incremental capital. While 

this potential magnitude is significant, JPMorgan Chase believes GMAC/Ally Financial can ‘‘easily fund potential liabilities’’ with its existing liquidity or estimated 2010 net income and notes 

that the firm increased its mortgage repurchase reserve by $1 billion in 2009 to end the year 

with a $1.2 billion reserve. 375 Ally Financial 3Q10 Preview, supra note 335, at 2. 

ceedings were sound.’’ 372 Corrective actions will be taken as necessary, according to the company, and company management expects that the vast majority of cases will be remediated over the 

next few months. 

With respect to the second issue, GMAC Mortgage, like other underwriters/issuers, is required to make representations and warranties about the mortgage loans to the purchaser or securitization 

trust when selling mortgage loans through whole-loan sales or 

securitizations. This may require it to repurchase mortgage loans 

as a result of borrower fraud or if a payment default occurs on a 

mortgage loan shortly after its origination. Over the course of 2010, 

GMAC/Ally Financial entered into settlements with Fannie Mae 

and Freddie Mac, under which it made one-time payments to 

Fannie Mae and Freddie Mac for the release of repurchase obligations relating to mortgage loans sold to the GSEs.373 This means 

that its remaining exposure is to potential repurchase obligations 

related to mortgage loans sold to private institutions to be 

securitized. Estimates of potential repurchase claims are subject to 

change as GMAC Mortgage provides more clarity on its exposure. 

Some analysts see GMAC/Ally Financial as a ‘‘well capitalized company with considerable liquidity and earnings power,’’ despite the 

risk of negative publicity surrounding mortgage uncertainties.374

Furthermore, while the company’s current repurchase reserve 

might not be sufficient to resolve all future claims, these issues will 

likely take years to settle, which would thereby spread the impact 

of the liability over a period of time and mitigate capital outflows.375 The repurchase exposure is the primary concern of both 

GMAC/Ally Financial’s management and investors, rather than the 


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376GMAC/Ally Financial conversations with Panel staff (Dec. 6, 2010); Industry analyst conversations with Panel staff (Dec. 1, 2010). 377Moody’s Investors Service, Issuer Comment: Problems at GMAC Servicing and Ally Financial Are Credit Negative (extracted from Moody’s Weekly Credit Outlook) (Sept. 27, 2010) (noting 

that GMAC/Ally Financial may need to increase its marketing expense to help offset or overcome the reputational damage associated with these developments). 378Treasury conversations with Panel staff (Nov. 18, 2010). 379Treasury conversations with Panel staff (Dec. 21, 2010). 380These meetings have been requested by both GMAC/Ally Financial and Treasury. GMAC/ 

Ally Financial conversations with Panel staff (Dec. 14, 2010). 

The Panel also notes the company’s recent testimony on this topic. See, e.g., Thomas Marano 

Testimony, supra note 368. 381GMAC/Ally Financial conversations with Panel staff (Dec. 13, 2010). 382 Ally Financial Transcript: Q3 2010 Earnings Call, supra note 306; Ally Financial 3Q10 

Earnings Review, supra note 300, at 40. 383 Ally Financial Form 10–Q, supra note 297, at 10. 

foreclosure irregularities issue.376 Because the 2009 stress tests 

considered the ability of financial institutions to remain well-capitalized only until the end of 2010, however, the stress tests offer 

limited reassurance that major bank holding companies like 

GMAC/Ally Financial will remain well-capitalized in the months 

and years to come, especially if the economic recovery remains 

sluggish. Even the prospect of such losses could damage GMAC/ 

Ally Financial’s reputation, its ability to raise capital, and its ability to pursue an IPO.377 If the company is unable to assuage investor concerns on this front, the timing of a potential IPO could be 

impacted. 

In conversations with Panel staff, Treasury representatives noted 

that they believe GMAC/Ally Financial’s exposure is manageable, 

and asserted that the risk profile of GMAC Mortgage is no worse 

or better than that of its peers.378 In addition, they stated that 

they have not dictated GMAC/Ally Financial’s response to the foreclosure irregularities issue, but have handled the issue in a ‘‘routine’’ manner, consistent with its core principles as a ‘‘reluctant 

shareholder.’’ 379 According to GMAC/Ally Financial, however, Mr. 

Carpenter has met with Treasury Acting Assistant Secretary for 

Financial Stability Tim Massad regularly on this topic.380 While 

GMAC/Ally Financial management concurs that Treasury has not 

told the company how to respond to this issue, they note that 

Treasury remains a ‘‘very concerned shareholder’’ on this topic.381

iv. Has GMAC/Ally Financial Sufficiently Reduced the Risk 

in its Mortgage Portfolio? 

As discussed above, one of GMAC/Ally Financial’s core goals has 

been to review the mortgage strategy and reduce the risk in its 

mortgage operations business. During the earnings call for the 

third quarter of 2010 (and in conversations with Panel staff), Mr. 

Carpenter stated that the company has ‘‘effectively de-risked the 

mortgage business.’’ 382 While ResCap was again profitable in the third quarter of 2010 (with net income of $38 million) and has required no additional capital or liquidity support, there continues to 

be a risk that ResCap will not be able to meet its debt service obligations.383 Although GMAC/Ally Financial’s mortgage operations 

proved to be a poor strategy in the past, its plans to retain and expand its mortgage servicing/origination business (rather than selling off the entire ResCap business) are much less balance sheet intensive and lower risk than mortgage originations. It remains unclear whether GMAC/Ally Financial has reduced the risk in its 


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384 Industry analyst conversations with Panel staff (Dec. 1, 2010). 385GMAC Form 10–K, supra note 360, at 83. 386GMAC Form 10–K, supra note 360, at 83. 387GMAC Form 10–K, supra note 360, at 83. 

mortgage portfolio completely, in large part because the company’s 

outstanding contingent liabilities (including repurchase claims) and 

any remaining legal exposure could present risks going forward.384

v. Maintaining a Robust Liquidity Profile 

As noted above, GMAC/Ally Financial faces multiple impediments to profitability, especially amid a fragile economic and market recovery. At the parent company level, GMAC/Ally Financial 

must maintain sufficient liquidity to support its non-bank asset 

originations, debt maturities, interest and dividends, and investments/loans to operating subsidiaries. GMAC/Ally Financial must 

continue to demonstrate unfettered and non-government-sponsored 

access to the third-party credit markets, including wholesale financing markets, and must continue to make headway in reducing 

its cost of capital. 

A key challenge facing GMAC/Ally Financial will be maintaining 

robust liquidity. GMAC/Ally Financial suffers from significant 

amounts of maturing debt, as reflected below in Figure 25. GMAC/ 

Ally Financial has $21.5 billion coming due in 2011 and $19.8 billion in 2012. In the second quarter of 2009, the company received 

approval to issue debt up to $7.4 billion under the FDIC’s Temporary Liquidity Guarantee Program (TLGP).385 Pursuant to the 

program, it issued $4.5 billion of unsecured long-term debt, which 

included $3.5 billion of senior fixed-rate notes and $1.0 billion of 

senior floating rate notes. Both types of notes are due in December 

2012.386 On October 30, 2009, GMAC/Ally Financial issued an ad- ditional $2.9 billion of unsecured debt in the form of senior fixedrate notes. These notes are due in October 2012.387 If GMAC/Ally 

Financial is unable to refinance at affordable rates or has insufficient cash to cover its maturing obligations, it may face even higher borrowing costs, possibly resulting in renewed liquidity problems. 


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388 Regarding ResCap long-term debt, $716 million is set to mature in 2011, $358 million is set to mature in 2012, $1,236 million is set to mature in 2013, $809 million is set to mature 

in 2014, and $1,011 million is set to mature during and after 2015. There was no ResCap longterm debt scheduled to mature in 2010. These amounts exclude ResCap debt held by GMAC/ 

Ally Financial and collateralized borrowings in securitized trusts. Ally Financial Form 10–Q, 

supra note 297, at 31. 389 Bankrate.com, CD Investment Rates (online at www.bankrate.com/cd.aspx) (accessed Jan. 

11, 2011). This strategy has been politically contentious as regulators view unusually high rates 

as an indication of instability. For example, in the summer of 2009, Ally Bank’s rates were more 

than double the national average. This prompted the American Bankers Association (ABA) to 

write a letter of complaint to the FDIC and the FDIC to issue new regulations setting a variety 

of standards for the interest rates permissible for insured depository institutions that are not 

well capitalized. For further discussion concerning the controversy surrounding Ally Bank’s interest rates and the viability of Ally Bank’s strategy going forward, see March 2010 Oversight 

Report, supra note 22, at 105–107. See also Bankrate.com, CD Investment Rates (online at 

www.bankrate.com/funnel/cd-investments/cd-investment-results.aspx?local=false&tab=CD&prods=15&ic_id=CR_searchCDNational_cd_1yrCD_V1) (accessed 

Jan. 11, 2011). 

FIGURE 25: LONG-TERM DEBT MATURITIES AS OF SEPTEMBER 30, 2010—ALLY 

FINANCIAL (EXCLUDING RESCAP) 388

vi. Ally Bank’s Strategy is a Work in Progress 

As discussed above, Ally Bank provides GMAC/Ally Financial 

with a source of liquidity in both the retail and wholesale markets. 

Ally Bank also provides diversified funding (including deposits) for 

the automotive financing unit. This strategy has several components. GMAC/Ally Financial is simultaneously integrating Ally 

Bank with the auto lending business while expanding its retail 

banking offerings. GMAC/Ally Financial is aware that its combination of retail online banking and wholesale automotive financial 

services is untested but believes that it offers good value to Ally 

Bank’s customers while simultaneously involving Ally Bank effectively in the automotive lending side of the business. 

GMAC/Ally Financial has been engaged in an aggressive marketing campaign for Ally Bank. Among other things, Ally Bank has 

been attempting to interest depositors by offering CD rates that 

have been and remain among the highest available nationally.389

Some analysts also believe that there is long-term uncertainty with 

Ally Bank’s funding strategy due to both the risks associated with 

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390Moody’s Investors Service, Global Credit Research, Liquidity Risk Assessment: Ally Financial Inc., at 1 (Oct. 15, 2010) (hereinafter ‘‘Moody’s Liquidity Risk Assessment’’). 391 Id. at 1. While Ally Bank has demonstrated strong CD retention rates, Moody’s believes 

that ‘‘these deposits are rate sensitive and therefore less sticky than demand deposits offered 

through traditional branch networks.’’ 

Given the very limited product suite at Ally Bank, some analysts believe that Ally Bank’s deposits function more like brokered deposits (or ‘‘hot money’’) than core deposits at more conventional banks. Industry analyst conversations with Panel staff (Dec. 1, 2010). Brokered deposits 

are large deposits that deposit brokers shop among depository institutions looking for high rates 

and are usually viewed as risky for the depository institution. They are short-term investments, 

which have been associated with high rates of bank failures. See Mindy West and Chris 

Newbury, Brokered and High-Cost Deposits, FDIC Interagency Minority Depository Institutions 

National Conference Presentation, at 33, 40 (July 2009) (online at www.fdic.gov/regulations/resources/minority/events/interagency2009/Presentations/Brokered.pdf). See also L.J. Davis, 

Chronicle of a Debacle Foretold, Harper’s Magazine, at 53–54 (Sept. 1990). 

One analyst considers Ally Bank’s proportion of brokered deposits and lack of restrictions on 

deposit withdrawals to be a warning sign of bank instability. See Congressional Oversight Panel, 

Written Testimony of Christopher Whalen, senior vice president and managing director, Institutional Risk Analytics, COP Hearing on GMAC Financial Services, at 18 (Feb. 25, 2010) (online 

at cop.senate.gov/documents/testimony-022510-whalen.pdf); Congressional Oversight Panel, Testimony of Christopher Whalen, senior vice president and managing director, Institutional Risk 

Analytics, Transcript: COP Hearing on GMAC Financial Services, at 91–98 (Feb. 25, 2010) (online at frwebgate.access.gpo.gov/cgi-bin/ 

getdoc.cgi?dbname=111_senate_hearings&docid=f:56723.pdf). 392Moody’s Liquidity Risk Assessment, supra note 390, at 1. 393GMAC/Ally Financial conversations with Panel staff (Dec. 6, 2010). 394 U.S. Department of the Treasury, Auto Supplier Support Program: Stabilizing the Auto Industry at a Time of Crisis (Mar. 19, 2009) (online at www.treasury.gov/press-center/press-releases/Documents//supplier_support_program_3_18.pdf). 

ing and those risks associated with whether an internet banking 

platform can meet the funding requirements of a large-scale company such as GMAC/Ally Financial.390 In addition, since Ally 

Bank’s current deposit mix is rate sensitive, GMAC/Ally Financial 

could be subject to some amount of volatility due to the potential 

for loss of customers and deposit amounts due to rate shifts.391 In 

order to support Ally Bank’s expansion and sustain its capital 

strength, the GMAC/Ally Financial parent company will ‘‘probably 

need to inject significant cash capital over the next few years.’’ 392

The extent to which GMAC/Ally Financial will need to provide Ally 

Bank with cash infusions remains unclear. 

Ultimately, Ally Bank appears to be both critical to GMAC/Ally 

Financial and is very much a work in progress. The Panel notes 

that Ally Bank may ultimately need to move toward a more traditional banking model (with a branch network) and broaden its footprint via other offerings. These possibilities, however, are not on 

the immediate horizon and would be impractical for the company 

to accomplish before the government’s exit.393

G. Auto Supplier Support Program 

1. Background 

Generally, automotive suppliers ship parts to auto manufacturers 

and receive payment 45–60 days later. Under normal market conditions, suppliers can either sell or borrow against the payment 

commitments, known as receivables. In early 2009, the downturn 

in the economy and uncertainty regarding the future of GM and 

Chrysler resulted in tightening credit for auto suppliers. Banks 

stopped providing credit against supplier receivables. On March 19, 

2009, in order to address this situation and to provide overall 

structural support for the auto industry, Treasury announced the 

creation of the Auto Supplier Support Program (ASSP).394


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395The credit insurance cost participants 2 percent, while selling receivables into the program 

carried a 3 percent cost. U.S. Department of Commerce, Office of Transportation and Machinery, 

On the Road: U.S. Automotive Parts Industry Annual Assessment, at 19 (2010) (online at 

trade.gov/wcm/groups/internet/documents/article/auto_reports_parts2010.pdf). 396The GM SPV closed on April 5, 2010, and the Chrysler SPV closed on April 7, 2010. Treasury Transactions Report, supra note 24, at 19. 397The additional notes were financial instruments that Treasury took from the Chrysler and 

GM SPVs as part of their agreement to participate in the program; the notes provided Treasury 

the opportunity to recognize upside gains on its investments. As dictated in the legislation that 

created the TARP, the Emergency Economic Stabilization Act, financial instruments such as 

warrants were to be provided to Treasury in consideration for its investment in participating 

institutions. As the law states, instruments such as warrants, or additional debentures in the 

case of the ASSP, were created ‘‘to provide for reasonable participation by the Secretary, for the 

benefit of taxpayers, in equity appreciation in the case of a warrant or other equity security, 

or a reasonable interest rate premium, in the case of a debt instrument.’’ 12 U.S.C. 

§ 5223(d)(2)(A)(i). 398Data provided by the Original Equipment Suppliers Association in response to a Panel request (Nov. 30, 2010). 

2. TARP Intervention 

When the ASSP was created, up to $5 billion in financing was 

made available through the TARP. Participating suppliers could access a government-backed guarantee of eligible receivables or sell 

receivables into the program. A fee was charged for participation 

in the ASSP, and receivables were sold into the program at a discount.395 While all domestic automotive manufacturers were eligible for the program, only Chrysler and GM participated. 

Two special-purpose vehicles (SPVs), GM Supplier Receivables 

LLC and Chrysler Receivables SPV LLC, were created to administer the program for GM and Chrysler, respectively. Originally, 

$3.5 billion was committed to the GM SPV, and $1.5 billion was 

dedicated to the Chrysler counterpart. On July 1, 2009, Treasury 

reduced the total amount available under the ASSP to $3.5 billion, 

with $2.5 billion being reserved for GM’s SPV and $1 billion for the 

Chrysler SPV. As Figure 26 details, through the life of the program, only $413.1 million of the $3.5 billion in available funding 

was drawn down. Treasury’s commitment to lend to the SPVs terminated in April 2010.396 All funds outstanding under the ASSP 

were repaid, and Treasury earned a total of $14.9 million in interest as well as $101.1 million in proceeds from additional notes.397

FIGURE 26: AUTO SUPPLIER SUPPORT PROGRAM METRICS 

[Millions of dollars] 

Original 

Commitment 

Adjusted 

Commitment 

Amount 

Drawn 

Down 

Interest 

Paid 

Proceeds 

from 

Additional 

Notes 

GM Receivables LLC .............................................. $3,500 $2,500 $290.0 $9.1 $56.5 

Chrysler Receivables SPV LLC .............................. 1,500 1,000 123.1 5.8 44.5 

Total ...................................................................... $5,000 $3,500 $413.1 $14.9 $101.1 

3. Current Status of Auto Supplier Industry 

Standard indicators appear to show a stabilization in the automotive supplier industry as industry-wide consolidation increases. 

While there were 62 automotive supplier bankruptcies in 2009, 

there were only 5 failures in 2010.398 Furthermore, the auto supplier industry’s capacity utilization rate, an indicator of the degree 

to which an enterprise uses its ability to produce, is currently 60.5 


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399Data provided by the Original Equipment Suppliers Association in response to a Panel request (Jan. 7, 2011). 400The State of the Supplier Industry, supra note 52, at 17. This measure is based on number 

of direct suppliers each manufacturer states it will use going forward. For example, Ford has 

stated that it will have 750 direct suppliers in the future as compared to the 1,600 it currently 

relies upon. 401White House Fact Sheet on General Motors Restructuring, supra note 36. 

percent. While this figure is significantly higher than it was at its 

trough of 45.9 percent during the crisis, it remains notably lower 

than the pre-crisis level, when it was typically above 70 percent.399

This has led to ongoing consolidation of the supplier industry. Ford, 

GM, and Chrysler have announced reductions of 53, 30, and 50 percent, respectively, in their direct supply bases.400

H. Analysis of Treasury’s Interaction with all Three 

Companies in Light of Government’s Objectives 

1. Summary of Principles upon which Government Says it 

Will Conduct its Involvement in Private Companies 

In numerous hearings, reports, and statements to the press, 

Treasury has articulated four guiding principles for its involvement 

in private industry in the wake of the financial crisis, and specifically for its involvement with the automotive industry. 

First, the government has cast itself as a ‘‘reluctant shareholder.’’ 

It has stated that: ‘‘[t]he government has no desire to own equity 

stakes in companies any longer than necessary, and will seek to 

dispose of its ownership interests as soon as practicable. Our goal 

is to promote strong and viable companies that can quickly be profitable and contribute to economic growth and jobs without government involvement.’’ 

Second, Treasury has said that it will ‘‘reserve the right to set 

upfront conditions to protect taxpayers, promote financial stability, 

and encourage growth. When necessary, these conditions may include restructurings similar to that now underway at GM as well 

as changes to ensure a strong board of directors that selects management with a sound long-term vision to restore their companies 

to profitability and to end the need for government support as 

quickly as is practically feasible.’’ 

Third, Treasury has stated its commitment to ‘‘managing its 

ownership stake in a hands-off, commercial manner.’’ This includes 

a commitment not to ‘‘interfere with or exert control over day-today company operations.’’ To the extent that Treasury appoints any 

board members, it has stated that ‘‘[n]o government employees will 

serve on the boards or be employed by these companies.’’ 

Finally, Treasury has stated that it will vote its shares only ‘‘on 

core governance issues, including the selection of a company’s 

board of directors and major corporate events or transactions.’’ 401

Put together, these principles illustrate an approach to government intervention that seeks to minimize the government’s role, 

dampen any leverage the government has simply by virtue of its 

unique authority as sovereign, and present itself as a shareholder 


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402Whether the use of the TARP for the support of the automotive industry is a legitimate 

use of TARP funds is an issue that the Panel has addressed at length. September 2009 Oversight Report, supra note 2, at 70–79. 403Data provided by Treasury (Dec. 9, 2010). 404Treasury conversations with Panel staff (Nov. 18 and 22, 2010). 

that behaves in most cases as a private shareholder would, while 

still protecting the assets of the people of the United States.402

Given the principles Treasury has laid out for its own involvement with the American automobile industry, three questions 

arise: (1) has Treasury abided by its own principles; (2) has Treasury used its limited powers effectively; and (3) was Treasury correct in establishing these guidelines as an act of prudent government restraint, or did the guidelines unnecessarily tie Treasury’s 

hands at a time when greater government action, or at least shareholder activism, was necessary. 

2. Has Treasury Abided by its own Principles? 

As to the first question, the answer seems to be a qualified yes. 

According to the information the Panel has received from Treasury 

and the companies, it seems that Treasury has kept to the guidelines it established for itself. It is unclear, however, whether given 

its status, the government can actually be a passive investor. On 

the whole, Treasury’s involvement in the companies has been restricted to participation in periodic calls with management to obtain information, appointing directors as permitted by the shares 

Treasury holds, and voting on a limited number of issues. At 

present, Treasury staff speaks with management at GM and 

Chrysler at least monthly and with management at GMAC/Ally Financial on a regular basis. In most cases, it is the companies that 

contact Treasury to convey new information such as earnings reports, or other relevant data. During these calls, company management provides Treasury with updated information on current operations and financial information, including updates on revenue, 

market share, domestic and international sales, and any corporate 

highlights as well as a review and analysis of the companies’ balance sheets.403 Treasury maintains that these calls are one-way; 

Treasury’s role is to listen to the information provided by management, and does not respond with any directives or requests of management.404 In the wake of allegations of irregularities in GMAC/ 

Ally Financial’s mortgage foreclosures, however, Treasury did take 

the initiative to contact the company for additional information regarding the irregularities. 

Treasury has described these calls as the type that any large 

shareholder might have with company management, although it is 

unlikely that a large private shareholder would actually be as passive as Treasury describes. For the most part, the companies also 

describe their interactions with Treasury as being similar to interactions with other major shareholders. For example, Chrysler has 

stated that it provides all of its owners, including Treasury, with 

the same information about its operations and financial results 

each month. GM has stated that Treasury expressed a desire to be 

kept apprised of progress but had no intention to influence the 

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405Treasury conversations with Panel staff (Nov. 22, 2010). 406The exact timing of the IPO was impacted by the holiday season. Treasury has stated that 

there was a consensus that if the IPO did not happen by mid-November 2010, it would have 

to wait until after the holidays and possibly until the spring for a receptive market. Treasury 

conversations with Panel staff (Nov. 22, 2010). As discussed in Sections C and D, supra, the 

company has taken several steps in the course of restructuring that have made it a more attractive investment, including streamlining its operations and improving its efficiency. 407March 2010 Oversight Report, supra note 22. 

mining the timing of its IPO was extremely limited and that Treasury left the decision in the hands of GM management. Chrysler has 

similarly stated that Treasury has not provided input on the proposed timing for that company’s IPO. 

Treasury has said that, in the period preceding the GM IPO, its 

interactions with GM were much more frequent than they had 

been previously.405 This increased activity, however, Treasury has 

attributed solely to its need to perform due diligence as a large 

shareholder. GM has affirmed this view, and has also confirmed 

Treasury’s position that the decision about when to have the IPO 

was made primarily by the company. Treasury and the Canadian 

government both had demand rights that would have enabled them 

to force an IPO by a certain date if the company had not begun the 

process, but the need to exercise those rights did not arise. Treasury has acknowledged that waiting a year or 18 months may have 

given GM time to improve its value even further, but noted that 

the company had determined that it was ready for an IPO.406

In general, GMAC/Ally Financial has described its interactions 

with Treasury in the same way. Preparations for GMAC/Ally Financial’s potential IPO, however, have presented some challenges 

that have led to a different dynamic in the interactions between 

GMAC/Ally Financial and Treasury with regard to this issue. As 

the Panel discussed in its March 2010 report, Treasury’s treatment 

of GMAC/Ally Financial has not adhered as firmly to the principles 

on which Treasury has claimed to base all of its TARP investment 

decisions.407 For Treasury to suggest otherwise in conversations 

with Panel staff may reveal a bias to present a consistent narrative 

regarding its shareholder principles, rather than acknowledging 

the unique circumstances that its stake in GMAC/Ally Financial 

may present. 

This is illustrated by the rigidity with which Treasury articulates 

these principles in explaining its interactions with the company— 

descriptions that often lack the transparency that would illustrate 

the unique factors that understandably impact Treasury’s GMAC/ 

Ally Financial exit strategy. 

Treasury initially informed the Panel on November 22, 2010 that 

the timing of a potential IPO was entirely up to GMAC/Ally Financial. However, this assertion neglected to acknowledge the practical 

impact of the continued uncertainty regarding the potential conversion status of the Treasury’s MCPs, and the obvious hurdle this 

would present in terms of proceeding with an IPO. Although Treasury later acknowledged that the timing of the conversion would impact the timing of the IPO, Treasury still maintained that the conversion of its MCP holdings was not a prerequisite for the company 

to proceed with an IPO. After a portion of the MCPs were converted, however, Treasury finally cited this move as a necessary 

step towards the IPO during a conversation with oversight bodies 


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408 In something of a departure from its involvement in GM, Treasury would not state unequivocally that the timing of a GMAC/Ally Financial IPO is solely in company management’s 

hands. Treasury conversations with Panel staff (Jan. 5, 2011). 409Treasury also cited the need to bolster GMAC/Ally Financial’s capital structure and its recent settlement with Fannie Mae on mortgage repurchase claims as affecting the timing of the 

conversion. During the same meeting, Treasury articulated, for the first time, the need to conduct the conversion in order to remove GMAC/Ally Financial from the strictures of section 23(a) 

of the Federal Reserve Act, which limits the transactions between a bank and its non-bank affiliates (in this instance, GM). Treasury conversations with Panel staff (Jan. 5, 2011). GMAC/ 

Ally Financial was granted an exemption from this rule in 2008 and in 2009. See March 2010 

Oversight Report, supra note 22, at 23–25. 

on January 5, 2011, and now appears somewhat more hesitant to 

reassert its prior claims of GMAC/Ally Financial’s independence to 

pursue its IPO on its own timetable.408 Treasury’s stated rationale 

for timing the conversion tacitly confirms the fact that a GMAC/ 

Ally Financial IPO would be impeded by a delay on Treasury’s part 

in converting its MCPs into common shares, and seems to contradict Treasury’s earlier statement that GMAC/Ally Financial 

could hold its IPO without waiting for Treasury to convert the 

MCPs.409 In any case, the Panel recognizes that this may be a prudent (but belated) acknowledgement of the unique factors that understandably complicate the IPO process for GMAC/Ally Financial. 

Treasury, in its role as shareholder, has also appointed a number 

of new members to the board of each company. At GM, Treasury 

has appointed 10 of the current 12 board members, including Dan 

Akerson, who was later named CEO by the company’s directors. 

Treasury has appointed four members to the Chrysler board, and 

three to GMAC/Ally Financial’s board, with an additional member 

currently undergoing the vetting process for appointment. As a result of converting a portion of its GMAC/Ally Financial MCPs into 

common shares, Treasury has also acquired the right to appoint 

two more members to the company’s board. In seeking candidates 

for these positions, Treasury used private search companies, such 

as might be used by a private shareholder seeking to appoint directors to a large corporation. 

As a common stockholder, Treasury has the right to vote its 

shares on various issues. In accordance with its commitment to 

vote only on ‘‘core governance issues,’’ Treasury has exercised its 

right three times, all at GM: the appointment of board members; 

a stock split that immediately preceded the IPO; and a charter 

amendment for the preservation of tax assets. These actions fall 

squarely within the category of ‘‘core governance issues’’ and are 

the type on which a large private shareholder would usually vote. 

Treasury has never voted its shares in Chrysler or GMAC/Ally Financial. 

Based on the information that Treasury has provided to the 

Panel, it appears that Treasury has been following its guidelines 

and has taken no action that a private shareholder could not take. 

This does not mean, however, that Treasury’s position as a majority shareholder, or even as a shareholder at any level, has had no 

impact on the companies. It may be impossible for a government 

agency to hold a stake in a private company without having a 

greater impact than a private shareholder. First, Treasury’s stake 

is more visible than that of any other shareholder. Because the 

American people have a direct interest in the companies, the companies’ every movement is of potential interest to the press. SecVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00096 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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410See September 2009 Oversight Report, supra note 2, at 80–102 (discussing the tensions inherent in government ownership of private enterprise). Moreover, GM has indicated that it believes that some potential consumers may be disinclined to buy automobiles from the companies 

due to dissatisfaction with the government’s policies. The company was unwilling to provide documentation to support this claim, as it views this analysis as confidential and proprietary. 411 Congressional Oversight Panel, Testimony of Ron Bloom, senior advisor, U.S. Department 

of the Treasury, Transcript: COP Field Hearing on the Auto Industry, at 38 (July 27, 2009) (online at cop.senate.gov/documents/transcript-072709-detroithearing.pdf) (hereinafter ‘‘Transcript: 

Testimony of Ron Bloom’’). 412 Id. at 38–39. 413The White House, The White House Whiteboard: The Rebirth of the American Auto Industry, at 3:15 (Nov. 18, 2010) (online at www.whitehouse.gov/photos-and-video/video/2010/11/18/ 

white-house-white-board-rebirth-american-auto-industry) (hereinafter ‘‘The White House 

Whiteboard: The Rebirth of the American Auto Industry’’). 

ond, Treasury makes larger waves with each of its movements than 

a private investor does. The fact that Treasury intends to have a 

‘‘hands-off’’ approach does not mean that its voice does not seem 

louder to the companies than those of other shareholders. 

Treasury’s ownership stake may have both a positive and negative impact on the companies’ share prices. For example, there may 

be a perception in the market—particularly among debt investors— 

that the government stands behind the companies, regardless of 

whether the government has that intention, thereby making credit 

available to the companies on more favorable terms than they 

would have otherwise received. As discussed in Section F.3.a, the 

current spreads on GMAC/Ally Financial credit default swaps support this assumption. On the negative side, potential investors may 

fear that Treasury would wield influence disproportionate to its 

holdings, and that Treasury’s presence is not a positive backstop, 

but an ongoing sign of the companies’ inherent weaknesses.410

3. Has Treasury Used its Limited Authority Effectively? 

To analyze the success of Treasury’s intervention in the automotive industry, there must first be a definition of ‘‘success.’’ Treasury has provided its own views on what would constitute a success. 

In testimony before the Panel, senior Treasury advisor Ronald 

Bloom defined success as primarily a question of return on investment: ‘‘the greater percentage of the money that we invested that 

we get back, the greater success.’’ 411 The investment was not, however, made purely for the purpose of seeing a return on those 

funds. Mr. Bloom also testified to the importance of job preservation and listed a number of other measures for determining whether the program was successful, including the question of ‘‘whether 

these companies have addressed the long-term problems that we 

identified,’’ such as ‘‘a declining market share, a poor profitability 

profile’’ and failing to increase their ability to provide ‘‘good, stable 

jobs.’’ 412 Austan Goolsbee, Chairman of the Council of Economic 

Advisers, appeared in a recent video released by the White House 

to explain the ‘‘Rebirth of the American Auto Industry.’’ According 

to Mr. Goolsbee, although taxpayers may soon see a return of the 

funds invested, the investment ‘‘was never really about the stock 

market. It was about saving American jobs.’’ 413

If the success of the overall automotive rescue, and of the government’s means of implementing that program in accordance with the 

principles listed in Section H.1, above, is measured by Treasury’s 

ability to meet its own definition of success, the program must: (1) 

provide a return on investment; (2) create or at least preserve jobs 


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414See Sections D, E, and F. 

that would have otherwise been lost; and (3) set the companies on 

a path toward ongoing stability. Treasury’s challenge, given its 

goals, lies not only in the difficulty of the goals themselves, but also 

in the fact that they may be mutually exclusive at times. For example, the best way to improve the return on investment and shore 

up the companies for the future may be to cut jobs. Also, to the extent that these companies have conflicting interests, Treasury may 

be placed in an untenable position. Historically, GMAC/Ally Financial has had close to a monopoly position in providing financing for 

GM dealers as well as a large share of the GM consumer financing 

market. This position is beneficial to GMAC/Ally Financial but not 

to GM and may have led to borrowers receiving more expensive 

loans than they might have obtained in a more competitive market. 

Treasury, as a stakeholder in both GM and GMAC/Ally Financial, 

can support neither GMAC/Ally Financial’s dominant market position nor the entrance of greater competition without potentially undermining its investment in one company or the other. Moreover, 

judging Treasury solely by its ability to meet goals it set for itself 

may lead to a result that is overly favorable to Treasury. The goals 

articulated by Treasury may include certain assumptions about the 

proper role of government and the needs of the American economy 

that are not shared by all. 

As described in detail elsewhere in this report,414 the likelihood 

that taxpayers will receive a full return of their money depends on 

a variety of market factors that are impossible to predict with perfect accuracy. A certain portion of the funds have already been repaid, however, and the current prospect for a significant return is 

more favorable than it was as of the Panel’s September 2009 report 

on the automotive industry. Using Mr. Bloom’s yardstick, therefore, 

the program has been more successful than many had predicted. 

Additional repayment at this point, however, turns in large part 

on Treasury’s ability to sell off its entire stake in each company, 

including its sizeable remaining stake in GM. As discussed in Sections D, E, and F, above, Treasury faces challenges in each case. 

In the case of GM, Treasury still holds a substantial share of the 

common stock, which it must sell at a price approximately 64 percent above the IPO price to realize a profit on the government’s 

overall investment. Investor interest in GM must therefore remain 

high enough to absorb such a large number of shares. GMAC/Ally 

Financial faces various uncertainties before investors are likely to 

welcome an IPO. And, in the case of Chrysler, the earliest an IPO 

is likely to occur is 2012, making it difficult to predict both Treasury’s ability to sell its entire stake and the amount Treasury is 

likely to receive in such a sale. In any case, $3.5 billion of Treasury’s investment in Chrysler has already been written off, so even 

a very successful IPO is unlikely to recoup all of the money invested in that company. Moreover, as discussed in Section E above, 

Treasury holds only an 8 percent equity stake in Chrysler and is 

unlikely to be able to exercise its call option to obtain more. This 

leaves Treasury with a stake that is too small either to command 

a control premium or to exercise any control over the timing of the 

IPO. Finally, it is not clear whether the market will have an appeVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00098 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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415See, e.g., Congressional Oversight Panel, September Oversight Report: Assessing the TARP 

on the Eve of Its Expiration, at 95–104 (Sept. 16, 2010) (online at cop.senate.gov/documents/cop091610-report.pdf). 416 In addition, Treasury has already written off $3.5 billion in funds invested in the domestic 

automotive industry. See Figure 1. 417The White House Whiteboard: The Rebirth of the American Auto Industry, supra note 413, 

at 3:36. An earlier White House estimate placed the figure at 1.1 million jobs saved by the entire automobile industry rescue. George W. Bush White House Archives Fact Sheet, supra note 

12. 418For a full discussion of the bankruptcy options available to GM and Chrysler, see September 2009 Oversight Report, supra note 2. 

tite for shares of another large American auto company soon after 

the GM IPO. 

The case of Chrysler Financial may provide an example of the 

government forgoing potential upside in order to exit an investment as quickly as possible. The issue is not that the implied value 

of Chrysler Financial increased by 33 percent in the seven months 

following the sale of Treasury’s stake to Cerberus in May 2010. The 

Panel acknowledges that there is no exact science to determining 

the most opportune time to exit an investment. Rather, the government’s exercise of due diligence in response to the overture from 

Cerberus to buy out its stake appears to have been surprisingly 

limited and did not envision other valuation scenarios for Chrysler 

Financial that would involve a strategic buyer for the asset. Clearly, both Cerberus and Chrysler Financial, on the other hand, recognized the value in the platform and subsequently sought to maximize the value of the business following the government’s exit in 

preparation for a sale to a strategic buyer. 

As the Panel has discussed in earlier reports, the cost of any program initiated under EESA cannot be measured solely by the 

amount of money returned to the public coffers.415 The cost must 

also include a calculation of the risk that the American people assumed while the loans or investments were outstanding.416 And it 

must include some accounting of the potential future effects on the 

industry and the wider economy, such as the heightened risk of 

moral hazard among American automobile companies, or among 

any large corporations, leading these companies and the market to 

assume that they have an implicit guarantee from the government 

(i.e., that they are ‘‘too big to fail,’’ or at least will receive generous 

government support to ease the bankruptcy process). Even if such 

effects cannot be determined until years into the future, their potential must be taken into account when measuring the success of 

the automobile programs. 

It is also difficult to determine how many jobs were saved 

through the government’s intervention. In the aforementioned 

White House video presentation, Mr. Goolsbee states that hundreds 

of thousands of American workers are currently employed at GM 

plants, dealerships, and auto suppliers instead of ‘‘going out and 

looking for new work.’’ 417 But, as discussed in Sections C and D, 

above, GM has also shed thousands of jobs as part of its bid to return to profitability. It is likely true that, had the company faced 

a prolonged disruption in operations as part of the bankruptcy 

process, either because the company was liquidated or because 

there was a significant delay in finding DIP financing, a much larger number of GM employees, if not all, may have been laid off.418

The exact number of jobs ultimately saved is difficult to determine. 


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419To the extent that the rescue of the automotive industry is viewed as a job preservation 

program, it is not clear that such a program aimed solely at a single industry was the best use 

of funds for this purpose. The Panel takes no position on this issue, however. 420On the other hand, it should be noted that employment in the motor vehicle and parts industry declined by 40 percent between November 2006 and November 2010, from 1.1 million 

to 650,000. 421 As discussed in Sections D and E above, though, both have made definite strides in this 

area. 

For example, some of the workers included in Mr. Goolsbee’s calculation, such as those working for suppliers, may have served customers in addition to GM and may not have been laid off in the 

event of a GM liquidation. In addition, if the rescue of the automotive industry ultimately proves unsuccessful, then these jobs 

were not truly saved; instead, unemployment for these workers was 

delayed at a cost to the American taxpayers.419 It is likely, however, that, had GM’s bankruptcy been a more prolonged process, a 

larger number of workers would likely have lost their jobs.420

The final issue with respect to the effectiveness of the government’s intervention is whether these companies are now on the 

path to long-term stability. Because the issues that determine longterm stability are often the same issues that determine a company’s valuation, these factors overlap substantially with the question of whether and to what extent Treasury may recover its investment and exit its positions in these companies. As discussed in 

prior sections of this report, GMAC/Ally Financial has been profitable for the last three quarters, GM’s earnings have increased in 

each of the last four quarters, and Chrysler has been consistently 

repaying its debts. GM and Chrysler nonetheless face a number of 

challenges. Both are seeking additional market share in the smallcar sector, which is extremely competitive. Both must also convince 

consumers that they are creating reliable, quality cars, since their 

reputation in this area has been declining in recent years.421

GMAC/Ally Financial must overcome its current trouble with foreclosure irregularities, and must establish a stable business model 

for automotive financing and leasing, one that is not overly dependent on GM in light of GM’s acquisition of AmeriCredit. GMAC/Ally 

Financial also faces uncertainty related to its heavy concentration 

in the automotive industry. Even if the three companies’ financials 

are relatively sound now, the domestic automotive sector as a 

whole must make a strong comeback in order for them to thrive. 

4. Was Treasury Right in Establishing These Guidelines for 

Itself? 

Treasury’s determination to set and abide by its own guidelines 

may be an exemplary exercise in government restraint, or it may 

be an unnecessary and harmful restriction on government in a time 

when government intervention was necessary. The guidelines, to 

the extent that they were followed, provided some reassurance to 

the markets that Treasury’s actions would be circumscribed and no 

more unpredictable than those of the average private investor. 

Moreover, given the public’s preference for free-market commerce 

instead of government-owned enterprise, the guidelines may have 

assuaged some objections to Treasury’s actions. They also may 

have provided a check on Treasury at times when the temptation 


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to take more aggressive action arose and ensured that rules established with a cooler head prevailed. 

On the other hand, Treasury created certain risk for the American people by imposing restrictions on its actions. The American 

people had a large amount of money at stake in private companies. 

Treasury arguably had a duty to protect those resources to the best 

of its ability, and voluntarily refraining from action could have 

been a way of doing less than that. Treasury staff has said that 

even if one of the companies had taken a step that, even to an industry outsider, would appear foolhardy, Treasury would not have 

stepped in to prevent the company from pursuing its plan. It does 

not appear that any of the companies involved with the TARP has 

had any intention of taking highly risky or questionable marketing 

or investment decisions, let alone actually having done so. Hence, 

Treasury’s self-restraint does not seem to have ultimately had any 

harmful effects in practice. 

There are, however, other opportunities that may have been lost. 

As discussed in the Panel’s March 2010 report on GMAC/Ally Financial, it appears that the option to merge the company back into 

GM, making GMAC/Ally Financial again a captive finance arm, 

was not considered, despite certain potential advantages. The 

Panel has no opinion on whether merging the companies would actually have been the correct course, but it is disconcerting that the 

option was not thoroughly examined. This lack of consideration 

raises questions about whether other options that may have maximized benefits to the taxpayer were also left unexplored due to 

Treasury’s avowed hands-off stance. 

I. Conclusions and Recommendations 

The financial crisis laid bare the challenges facing the domestic 

U.S. auto industry. The cumulative impact of a series of strategic 

and competitive missteps over the preceding decade came to the 

fore in the fall of 2008. While the Panel has previously questioned 

the government’s perception of its policy choices during various 

stages of the crisis, there is little doubt that in the absence of massive government assistance, GM, Chrysler, and GMAC/Ally Financial faced the prospect of bankruptcies and potential liquidation, 

given the apparent dearth of available financing from the private 

sector. In the context of a fragile economy and the financial crisis 

(which severely restricted both corporate and consumer credit), the 

failure of these companies could have had significant near-term 

consequences in terms of job losses and the performance of the 

broader U.S. economy. Although the assets of GM and Chrysler 

(plants and equipment, employees, brand recognition) would have 

had value to other firms over the longer term, it was in the context 

of these adverse near-term consequences that both the Bush and 

Obama Administrations provided assistance to the auto sector. 

The Panel takes no position on the decision to support the auto 

industry, a topic addressed in our September 2009 report. All told, 

the Bush and Obama Administrations provided $81.4 billion in assistance to these three companies (as well as $3.5 billion for auto 

suppliers). Unlike assistance to the banks, much of the government’s investment still hangs in the balance, with 66 percent of 

overall assistance still outstanding. Treasury is now on course to 


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422OFS Agency Financial Report, supra note 172, at 11; Treasury Transactions Report, supra 

note 24, at 18–19. 423Total funds recovered to date excludes dividends and interest of $766 million paid to Treasury through December 31, 2010. 424Total funds recovered to date excludes interest of $580 million paid to Treasury through 

December 31, 2010. 

recover the majority of its automotive investments within the next 

few years, but the impact of its actions will reverberate for much 

longer. Treasury’s rescue suggested that any sufficiently large 

American corporation may be considered ‘‘too big to fail,’’ broadening moral hazard risk from its TARP rescue actions beyond the 

financial sector. Further, the fact that the government helped absorb the consequences of GM’s and Chrysler’s failures has put more 

competently managed automotive companies at a disadvantage. 

Still, while the government perhaps set a dangerous precedent of 

expanding the notion of ‘‘too-big-to-fail’’ to the non-financial sector, 

the terms on which this support was provided offered considerably 

less comfort to legacy shareholders and creditors, at least to those 

of Chrysler and GM, than it did to the equity and debt holders of 

rescued financial firms. 

While the outlook for the return on taxpayer funds has improved 

considerably over the past 12 months, there is still a long road 

ahead, particularly for GMAC/Ally Financial and Chrysler. Improving industry fundamentals—signified by GM’s recent IPO—highlight a more hospitable backdrop since the Panel’s last report on 

the auto sector in September 2009. This backdrop corresponds with 

improved operating fundamentals, as GM and Chrysler have shed 

costs and positioned themselves to produce profits at much lower 

levels of output. Market shares have generally stabilized, as has 

vehicle pricing since manufacturers no longer need to offer generous incentives to reduce overladen inventories. GMAC/Ally Financial has benefited from an improving backdrop for mortgage assets, allowing the firm to reduce the crushing overhang of its mortgage exposure, as well as reverse at least a portion of prior asset 

write-downs. 

Against this improving backdrop, GM has reported improving 

earnings in each of the past four quarters. GMAC/Ally Financial is 

now in the black after reporting losses throughout 2009, and 

Chrysler’s performance has improved materially with the help of 

its alliance with Fiat. (While operationally profitable, interest payments on TARP loans have prevented a bottom-line return to profitability at Chrysler.) Treasury’s calculations of potential taxpayer losses of $14.7 bil- lion on total assistance of $81.3 billion to these three firms could 

ultimately prove conservative, but significant risks remain, given 

that the amount recovered will depend heavily on public market 

valuations of each firm’s shares into 2011 and beyond.422 Below is 

a brief summary of the status of Treasury’s investments in GM, 

Chrysler, and GMAC/Ally Financial. • GM: Of the $49.9 billion in total assistance, the government 

has thus far recouped $22.7 billion.423 As of December 31, 

2010, the government’s unsold stake is valued at $18.4 billion, 

which would represent a total taxpayer loss of $7.9 billion. • Chrysler: Only $2.2 billion in total assistance has been recouped,424 and $3.5 billion in loans are considered a loss. HowVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00102 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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425 Certain assumptions apply to this estimate. See Section E.3 for a fuller discussion. 426Transcript: Testimony of Ron Bloom, supra note 411, at 38. 

ever, the improved financial performance of the company indicates that Treasury’s remaining loans to Chrysler may in fact 

be ultimately recovered. As discussed in Section E, for the government to recoup losses already incurred to Old Chrysler, the 

equity value of a potential IPO would have to exceed $14.5 billion.425

• GMAC/Ally Financial: Significant equity investments in 

GMAC/Ally Financial imply greater risk and more uncertainty 

in the lead-up to a potential IPO in 2011, although the improved operating performance—similar to that of GM and 

Chrysler—bodes well for a meaningful return on the $17.2 billion in total assistance to GMAC/Ally Financial. This being 

said, GMAC/Ally Financial is now the last TARP recipient 

standing—after the accelerated Citigroup exit and recent announcements about exiting AIG—for which the government 

has control of its exit and not articulated a clear exit strategy. 

These rescue efforts by the government employed differentiated 

strategies with varying levels of risk to the taxpayer. While GM 

and Chrysler were put through bankruptcy, GMAC/Ally Financial 

was not, to the relative benefit of its legacy shareholders and creditors. Whereas the government shouldered the entire rescue of GM, 

it enlisted Fiat as a partner for Chrysler, which is a smaller and 

less economically significant automobile manufacturer than GM. 

While the Panel has outlined various scenarios that could see 

taxpayers recover a meaningful amount of this assistance over the 

next two years, the financial returns on these investments do not 

tell the entire story and should not overshadow the Administration’s broader objectives in providing assistance to the auto industry. 

Unlike the intervention in the financial sector, the government 

in this case sought a broad restructuring of the underlying industry, and it was able to pursue this objective given its controlling 

stake in some of the impacted companies. Given the broader restructuring aims—as well as countering the threat of imminent 

and massive job losses—it is perhaps not surprising that the government has offered various benchmarks beyond a strict tally of 

the full return of the taxpayer’s assistance to measure its success 

in this endeavor. While senior Treasury advisor Ronald Bloom once 

defined success solely in monetary terms—‘‘the greater percentage 

of the money that we invested that we get back, the greater success’’ 426—on other occasions Mr. Bloom and others in the Administration have cited the dual mandates of jobs preservation and effecting lasting fundamental reform of the auto sector. 

As outlined in this report, there are examples of conflict—some 

inevitable, others not—between Treasury’s core principles. In particular, the government has sought to present a consistent narrative of its role as a reluctant shareholder. In the case of GMAC/ 

Ally Financial, transparency that would illustrate the unique circumstances of specific investments and explain certain actions by 

Treasury has sometimes been sacrificed in favor of retaining the 

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mines the spirit of transparency critical to the effectiveness of the 

TARP. 

Another recent example of this conflict between Treasury’s principles involves Chrysler Financial, where meaningful incremental 

taxpayer returns appear to have been sacrificed in favor of an unnecessarily accelerated exit, further compounded by apparently 

questionable due diligence. The Panel notes that questions stemming from this transaction are not motivated by the fact that seven 

months following Treasury’s exit, Chrysler Financial sold at a price 

that was 33 percent higher than the value of the company implied 

by Treasury’s settlement price. Rather, the government’s due diligence on the sale of its stake to Cerberus was surprisingly limited 

in scope. Treasury focused on the merits of the offer at hand and 

apparently neglected to contemplate more favorable valuation scenarios that may have resulted from a competitive bidding process 

of eager strategic buyers looking to acquire and invest in the 

Chrysler Financial platform. Given the apparent success of the 

longer-term investment mindset that has characterized the government’s management of its AIG and GMAC/Ally Financial investments, Treasury’s haste to exit Chrysler Financial is perplexing. 

A final tally on the return of taxpayer assistance and a report 

card on longer-term reform efforts remain premature. Early returns indicate that the government’s intervention in the auto sector—leaving aside any assessment of the relative merits of providing that assistance in the first place—has been surprisingly successful, both in terms of financial returns from assistance and the 

rebound in the companies’ performance. The Panel notes that GM 

and Chrysler are now adding jobs after their initial downsizings. 

However, as noted, a more robust scorecard, one that weighs the 

positives from government intervention, such as the near-term 

preservation of jobs and prevention of a deeper contraction in the 

economy, versus the negatives, including the investment of substantial taxpayer dollars and the precedent set by government 

intervention into the private sector, is required to evaluate fully 

the government’s actions. Nonetheless, this longer-term assessment 

should not obscure the near-term focus on recovering as much 

value as possible for the taxpayer. At the same time, the Panel recognizes that absent sustainable reform that produces a smaller 

auto industry subject to the discipline of the private capital markets, improved returns on taxpayer assistance could mask longerterm risks. 

Likewise, the relatively improved outlook should not overshadow 

serious questions that prevent a more transparent assessment of 

the government’s efforts. These questions arise from the fact that, 

having intervened on a massive scale and outlined sweeping mandates for the reform of the industry, the government—by its own 

account—then chose largely to retreat to the sidelines, performing 

run-of-the-mill oversight of its investments and leaving the heavy 

lifting to the government’s designees on the companies’ boards of 

directors. 

Treasury has consistently (and often vociferously) asserted that 

it will not interfere or otherwise seek to influence the strategic 

management of the companies in which it holds a stake. The Panel 

recognizes the importance of a hands-off approach to day-to-day 


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427 A similar portfolio analysis might have been undertaken at the time of the initial decision 

to rescue Chrysler, exploring the alternative of letting Chrysler fail in order to bolster the prospects of the remaining domestic auto manufacturers, particularly GM. 

business operations and recognizes that crossing this line in certain 

instances can raise troubling questions regarding the government’s 

role in the private sector. However, many would argue that this 

line had long since been crossed, given the government’s initial decision to provide assistance to the auto industry, and to pretend 

otherwise today begs credulity. 

In the case of GMAC/Ally Financial, the Panel recommended previously that Treasury explore the possibility of value-enhancing 

strategic arrangements that would seek to maximize the government’s aggregate stake in both GM and GMAC/Ally Financial. Subsequently, rather than seeking a closer relationship with GMAC/ 

Ally Financial, GM has chosen to build its own auto financing subsidiary via the acquisition of AmeriCredit. While such a move may 

seemingly make strategic sense for GM, it is not clear if the value 

to the government, as a shareholder in GM, outstrips the potential 

negative impact of this acquisition to the government’s stake in 

GMAC/Ally Financial. Treasury’s deliberate refusal to take a portfolio investment approach to managing its holdings across the auto 

sector appears to be inconsistent with the rationale for its decision 

to rescue GMAC/Ally Financial, which was to help GM continue to 

finance car sales, particularly to its dealership network.427

The Panel recognizes two potential positive developments from 

Treasury’s hands-off approach. Namely, GM’s efforts to establish 

its own captive auto finance subsidiary will likely improve the competitive dynamics in this market by reducing the company’s reliance on GMAC/Ally Financial. Further, any residual moral hazard 

in the marketplace related to the perception that GMAC/Ally Financial is too interconnected with GM to be allowed to fail would 

likely be mitigated by GM’s development of its own captive financing subsidiary. 

The Panel makes the following recommendations: 

• The Administration should enhance disclosure in the budget 

and financial statements for the TARP by reporting on the 

valuation assumptions (‘‘credit reform’’ subsidy rates) for the 

individual companies included in the overall subsidy rate for 

the AIFP. 

• The Panel recognizes that it is in the private sector’s and the 

government’s interest for Treasury to exit its investments as 

soon as practicable. However, Treasury should be cognizant 

that this may not in all instances be in the taxpayer’s best interest. The Panel urges Treasury to consult independent third 

parties to assess these determinations in the future to identify 

instances where a longer investment horizon may meaningfully 

improve the outlook for the taxpayer’s return on its investment. • Treasury sought to assure the Panel during its February 2010 

hearing on GMAC/Ally Financial that legacy private sector 

stakeholders in the company would not see any return until 

and if the U.S. taxpayer recoups its entire investment. The 

Panel recommends that Treasury expand on this assertion, 

clarifying its approach to the treatment of legacy shareholders 


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in GMAC/Ally Financial as the government’s exit plan moves 

forward. Aside from the consequences to the taxpayer’s interest, clarifying the treatment of legacy shareholders will help 

preserve market discipline going forward. • Given the scale of government intervention and the desire not 

to repeat this episode, it may be in the taxpayer’s interest that 

Congress commission independent researchers to periodically 

assess the long-term fallout from the collapse of the auto industry and the subsequent government intervention, including 

the risk to taxpayers stemming from future disruptions to the 

auto market from economic, credit market or other potential 

threats. Related to these efforts, Congress should also follow 

up by contracting with independent researchers and market 

analysts to develop more credible estimates of the impact of 

the bailout of GM, GMAC/Ally Financial, and Chrysler on economic performance and employment. 


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428See Congressional Budget Office, Report on the Troubled Asset Relief Program—November 

2010, at 5 (Nov. 18, 2010) (online at www.cbo.gov/ftpdocs/119xx/doc11980/11-29-TARP.pdf). 429See U.S. Navy, Fact File: Aircraft Carriers (online at www.navy.mil/navydata/ 

factldisplay.asp?cid=4200&tid=200&ct=4) (accessed Jan. 12, 2011); U.S. Department of Health 

and Human Services, National Institutes of Health, Estimates of Funding for Various Research, 

Condition and Disease Categories (RCDC) (Feb. 1, 2010) (online at report.nih.gov/rcdc/ 

categories/). 430See Section I, supra. 

SECTION TWO: ADDITIONAL VIEWS 

A. J. Mark McWatters and Professor Kenneth R. Troske 

We concur with the issuance of the January report and offer the 

additional observations below. We appreciate the efforts the Panel 

and staff made incorporating our suggestions offered during the 

drafting of the report. 

We wish to make the following points. 

• In the closing days of 2008 when GM, Chrysler, and GMAC/ 

Ally Financial faltered, the American taxpayers—not the Department of Treasury—stood as the last safe-haven for these 

distressed institutions. In return for their generosity the CBO 

estimates that the taxpayers stand to lose approximately $19 

billion on their investments.428 This is real money, enough to 

finance the construction of over four Nimitz-class aircraft carriers (at $4.5 billion each) or fund approximately 25 years of 

NIH-sponsored breast cancer research (at $765 million per 

year).429

• Treasury’s primary role in the restructuring of GM, Chrysler, 

and GMAC/Ally Financial was to act as a funding conduit for 

the taxpayer sourced capital infusions. These institutions have, 

not surprisingly, performed reasonably well over the past several months due to the strength of their foreign markets, the 

recovery of their domestic markets, the replacement of their directors and senior management, the de-leveraging of their balance sheets, the renegotiation of their collective bargaining 

agreements, the recovery of the capital markets, the tepid recovery of the general economy, and, of course, the ‘‘gift’’ of $19 

billion or so of taxpayer funds. It remains to be seen, however, 

if these companies can remain on the path to financial recovery 

and independence from taxpayer-sourced subsidies. 

• The Panel concludes in the report: ‘‘there is little doubt that 

in the absence of massive government assistance, GM, Chrysler, and GMAC/Ally Financial faced the prospect of bankruptcies and potential liquidation.’’ 430

While bankruptcy did follow for GM and Chrysler and probably 

should have followed for GMAC/Ally Financial, we remain 

skeptical that the companies would have been liquidated and 

sold off for scrap value absent direct intervention by the government. The brisk turn-around of the three institutions over 

the past two years indicates that even in the last quarter of 

2008 substantial inherent value existed within each company. 

Despite claims to the contrary, we still have trouble concluding 

that Chevrolet, Cadillac, Buick, GMC trucks, and Jeep, as well 

as GMAC/Ally Financial’s auto finance business, among others, 

were worth next to nothing in the closing days of 2008 and, but 


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431See Section I, supra. 432See Section A, supra. 

for the taxpayer-funded bailouts, would have failed and left 

hundreds of thousands temporarily unemployed. It would have 

been preferable for these institutions to have been reorganized 

by private sector participants, with, perhaps, debtor-in-possession financing guaranteed to a limited extent by the government. It is difficult to accept that private sector strategic buyers, private equity firms, hedge funds, and sovereign wealth 

funds were not willing and able to orchestrate the successful 

reorganizations or restructurings of the three distressed companies. Once the government entered the picture and signaled 

its intent to bail out the institutions with its unlimited taxpayer-financed checkbook, it is hardly surprising that private 

sector participants demurred. Under such circumstances, it is 

not possible for even the most sophisticated, motivated, and financially secure of private sector firms to prevail. 

• The Panel states in the report: 

Treasury is now on course to recover the majority of its 

automotive investments within the next few years, but the 

impact of its actions will reverberate for much longer. 

Treasury’s rescue suggested that any sufficiently large 

American corporation—even if it is not a bank—may be 

considered ‘‘too big to fail,’’ creating a risk that moral hazard will infect areas of the economy far beyond the financial system. Further, the fact that the government helped 

absorb the consequences of GM’s and Chrysler’s failures 

has put more competently managed automotive companies 

at a disadvantage. For these reasons, the effects of Treasury’s intervention will linger long after taxpayers have 

sold their last share of stock in the automotive industry.431

The Panel states in the report: 

These favorable events, however, must be thoughtfully balanced against the moral hazard risks created by the taxpayer’s bailout of the three institutions and the ongoing 

implicit guarantee of the government. By bailing out GM, 

Chrysler, and GMAC/Ally Financial, the government sent 

a powerful message to the marketplace—some institutions 

will be protected at all cost, while others must prosper or 

fail based upon their own business judgment and acumen. 

We regret that Treasury has focused solely on the apparent success of the GM IPO in assessing the rescues of the 

three institutions to the distinct exclusion of the moral 

hazard risks arising from the bailouts.432

The Panel also states in the report: 

As the Panel has discussed in earlier reports, the cost of 

any program initiated under EESA cannot be measured 

solely by the amount of money returned to the public coffers. The cost must also include a calculation of the risk 

that the American people assumed while the loans or investments were outstanding. And it must include some accounting of the potential future effects on the industry and 


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433See Section H.3, supra. 434See September 2009 Oversight Report, supra note 2, at 148 (from the Additional Views of 

former Panel member Congressman Jeb Hensarling). 

the wider economy, such as the heightened risk of moral 

hazard among American automobile companies, or among 

any large corporations, leading these companies and the 

market to assume that they have an implicit guarantee 

from the government (i.e., that they are ‘‘too big to fail,’’ 

or at least will receive generous government support to 

ease the bankruptcy process). Even if such effects cannot 

be determined until years into the future, their potential 

must be taken into account when measuring the success of 

the automobile programs.433

In our view, the above passages represent the most significant 

analysis provided in the report. The TARP has all but created 

an expectation, if not an emerging sense of entitlement, that 

certain financial and non-financial institutions are simply ‘‘toobig-or-too-interconnected-to-fail’’ and that the government will 

promptly honor the implicit guarantee issued for the benefit of 

any such institution that suffers a reversal of fortune. This is 

the enduring legacy of the TARP. Unfortunately, by offering a 

strong safety net funded with unlimited taxpayer resources, 

the government has encouraged potential recipients of such 

largess to undertake inappropriately risky behavior secure in 

the conviction that all profits from their endeavors will inure 

to their benefit and that large losses will fall to the taxpayers. 

The placement of a government sanctioned thumb-on-thescales corrupts the fundamental tenets of a market economy— 

the ability to prosper and the ability to fail. 

Following the bailouts of GM, Chrysler, and GMAC/Ally Financial and the potential loss of $19 billion or more of taxpayersourced funds, is it realistic to expect that the government will 

permit these companies to fail the next time around? We have 

our doubts. More significantly, the directors, managers, and 

employees of these institutions most likely appreciate the benefits afforded by the government’s implicit guarantee, but it remains to be seen whether they also appreciate the attendant 

moral hazard risks. 

• Although not the subject of this report, we would be remiss if 

we did not note that commentators have questioned the treatment 

of certain classes of creditors in the GM and Chrysler bankruptcies 

as well as certain procedures adopted by and rulings of the bankruptcy courts.434

Regarding this matter, Barry E. Adler, the Petrie Professor of 

Law and Business, New York University, offered the following 

testimony to the Panel: 

The rapid disposition of Chrysler in Chapter 11 was formally structured as a sale under § 363 of the Bankruptcy 

Code. While that provision does, under some conditions, 

permit the sale of a debtor’s assets, free and clear of any 

interest in them, the sale in Chrysler was irregular and inconsistent with the principles that undergird the Code. 


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435 Congressional Oversight Panel, Written Testimony of Barry E. Adler, Charles Seligson Professor of Law, New York University School of Law, COP Field Hearing on the Auto Industry, 

at 2–3 (July 27, 2009) (online at cop.senate.gov/documents/testimony-072709-adler.pdf). 

The most notable irregularity of the Chrysler sale was that 

the assets were not sold free and clear . . . That is, money 

that might have been available to repay these secured 

creditors was withheld by the purchaser to satisfy unsecured obligations owed the UAW. Thus, the sale of Chrysler’s assets was not merely a sale, but also a distribution— 

one might call it a diversion—of the sale proceeds seemingly inconsistent with contractual priority among the 

creditors. 

Given the constraint on bids, it is conceivable that the liquidation value of Chrysler’s assets exceeded the company’s 

going-concern value but that no liquidation bidder came 

forward because the assumed liabilities—combined with 

the government’s determination to have the company stay 

in business—made a challenge to the favored sale unprofitable, particularly in the short time frame afforded. It is 

also possible that, but for the restrictions, there might 

have been a higher bid for the company as a going concern, perhaps in anticipation of striking a better deal with 

workers. Thus, the approved sale may not have fetched the 

best price for the Chrysler assets. That is, the diversion of 

sales proceeds to the assumed liabilities may have been 

greater than the government’s subsidy of the transaction, 

if any, in which case the secured creditors would have suffered a loss of priority for their claims. There is nothing 

in the Bankruptcy Code that allows a sale for less than 

fair value simply because the circumstances benefit a favored group of creditors.435

In addition, with respect to the bailout of GMAC/Ally Financial, the Panel offered the following observations in its March 

2010 report: 

Although the Panel takes no position on whether Treasury 

should have rescued GMAC, it finds that Treasury missed 

opportunities to increase accountability and better protect 

taxpayers’ money. Treasury did not, for example, condition 

access to TARP money on the same sweeping changes that 

it required from GM and Chrysler: it did not wipe out 

GMAC’s equity holders; nor did it require GMAC to create 

a viable plan for returning to profitability; nor did it require a detailed, public explanation of how the company 

would use taxpayer funds to increase consumer lending. 

Moreover, the Panel remains unconvinced that bankruptcy 

was not a viable option in 2008. In connection with the 

Chrysler and GM bankruptcies, Treasury might have been 

able to orchestrate a strategic bankruptcy for GMAC. This 

bankruptcy could have preserved GMAC’s automotive 

lending functions while winding down its other, less significant operations, dealing with the ongoing liabilities of 

the mortgage lending operations, and putting the company 

on sounder economic footing. The Panel is also concerned 


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436March 2010 Oversight Report, supra note 22, at 4. See also id. at 122 (from the Additional 

Views of Panel member J. Mark McWatters and former Panel member Paul S. Atkins). 

that Treasury has not given due consideration to the possibility of merging GMAC back into GM, a step which would 

restore GM’s financing operations to the model generally 

shared by other automotive manufacturers, thus strengthening GM and eliminating other money-losing operations.436


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SECTION THREE: TARP UPDATES SINCE LAST REPORT 

A. Ally Financial Mandatory Convertible Preferred 

Exchange to Common Stock 

On December 30, 2010, Treasury converted $5.5 billion of its 

total convertible preferred stock in GMAC/Ally Financial into 

531,850 shares of common stock of the company, following the 

terms of conversion. Treasury currently holds $5.9 billion of 

GMAC/Ally Financial’s convertible preferred stock, $2.7 billion in 

Trust Preferred securities, and 73.8 percent of the common stock. 

B. Metrics 

Each month, the Panel’s report highlights a number of metrics 

that the Panel and others, including Treasury, the Government Accountability Office (GAO), the Special Inspector General for the 

Troubled Asset Relief Program (SIGTARP), and the Financial Stability Oversight Board, consider useful in assessing the effectiveness of the Administration’s efforts to restore financial stability 

and accomplish the goals of EESA. This section discusses changes 

that have occurred in several indicators since the release of the 

Panel’s December 2010 report. 

1. Financial Indices 

Financial Stress. The St. Louis Financial Stress Index, a proxy 

for financial stress in the U.S. economy, has decreased by more 

than half since the Panel’s December 2010 report. The index has 

decreased more than 80 percent since its post-crisis peak in June 

2010. Furthermore, the recent trend in the index suggests that financial stress continues moving toward its long-run norm. The 

index has decreased by more than four standard deviations since 

EESA was enacted in October 2008. 


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437Federal Reserve Bank of St. Louis, Series STLFSI: Business/Fiscal: Other Economic Indi- cators (Instrument: St. Louis Financial Stress Index, Frequency: Weekly) (online at research.stlouisfed.org/fred2/series/STLFSI) (accessed Jan. 3, 2011). The index includes 18 weekly 

data series, beginning in December 1993 to the present. The series are: effective federal funds 

rate, 2-year Treasury, 10-year Treasury, 30-year Treasury, Baa-rated corporate, Merrill Lynch 

High Yield Corporate Master II Index, Merrill Lynch Asset-Backed Master BBB-rated, 10-year 

Treasury minus 3-month Treasury, Corporate Baa-rated bond minus 10-year Treasury, Merrill 

Lynch High Yield Corporate Master II Index minus 10-year Treasury, 3-month LIBOR-OIS 

spread, 3-month TED spread, 3-month commercial paper minus 3-month Treasury, the J.P. Morgan Emerging Markets Bond Index Plus, Chicago Board Options Exchange Market Volatility 

Index, Merrill Lynch Bond Market Volatility Index (1-month), 10-year nominal Treasury yield 

minus 10-year Treasury Inflation Protected Security yield, and Vanguard Financials ExchangeTraded Fund (equities). The index is constructed using principal components analysis after the 

data series are de-meaned and divided by their respective standard deviations to make them 

comparable units. The standard deviation of the index is set to 1. For more details on the construction of this index, see Federal Reserve Bank of St. Louis, National Economic Trends Appendix: The St. Louis Fed’s Financial Stress Index (Jan. 2010) (online at research.stlouisfed.org/ 

publications/net/NETJan2010Appendix.pdf). 

FIGURE 27: ST. LOUIS FEDERAL RESERVE FINANCIAL STRESS INDEX 437

Stock Market Volatility. Stock market volatility, as measured 

by the Chicago Board Options Exchange Volatility Index (VIX), 

continues to decrease. The VIX has fallen by more than half since 

its post-crisis peak in May 2010 and has declined 18 percent since 

the Panel’s December 2010 report. As of January 3, 2011, volatility 

was 13 percent higher than its post-crisis low on April 12, 2010. 


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438Data accessed through Bloomberg Data Service (Jan. 3, 2011). The CBOE VIX is a key 

measure of market expectations of near-term volatility. Chicago Board Options Exchange, The 

CBOE Volatility Index—VIX, 2009 (online at www.cboe.com/micro/vix/vixwhite.pdf) (accessed 

Jan. 3, 2011). 439Data accessed through Bloomberg Data Service (Jan. 3, 2011). 442 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release 

H.15: Selected Interest Rates: Historical Data (Instrument: Conventional Mortgages, Frequency: 

Weekly) (online at www.federalreserve.gov/releases/h15/data/Weekly_Thursday_/ 

H15_MORTG_NA.txt) (accessed Jan. 3, 2011) (hereinafter ‘‘Federal Reserve Statistical Release 

H.15’’); Federal Reserve Bank of St. Louis, Series DGS10: Interest Rates: Treasury Constant Maturity (Instrument: 10–Year Treasury Constant Maturity Rate, Frequency: Daily) (online at research.stlouisfed.org/fred2/series/DGS10) (accessed Jan. 3, 2011). 

FIGURE 28: CHICAGO BOARD OPTIONS EXCHANGE VOLATILITY INDEX 438

Interest Rates. As of January 3, 2011, the 3-month and 1- 

month London Interbank Offer Rates (LIBOR), the prices at which 

banks lend and borrow from each other, were 0.30 and 0.26, respectively.439 Both rates have decreased slightly since the Panel’s December 2010 report. The 3-month and 1-month LIBOR remain 

below their post-crisis highs in June 2010. Over the longer term, 

interest rates remain extremely low relative to pre-crisis levels, reflecting the impact of the actions of central banks and institutions’ 

perceptions of reduced risk in lending to other banks. 

FIGURE 29: 3-MONTH AND 1-MONTH LIBOR RATES (AS OF JANUARY 3, 2011) 

Indicator Current Rates 

Percent Change from Data 

Available at Time of Last 

Report (12/1/2010) 

3-Month LIBOR 440 ............................................................................................. 0.30 (0.2) 

1-Month LIBOR 441 ............................................................................................. 0.26 (1.8) 

440 Data accessed through Bloomberg Data Service (Jan. 3, 2011). 441 Data accessed through Bloomberg Data Service (Jan. 3, 2011). 

Interest Rate Spreads. As of January 3, 2011, the conventional 

mortgage rate spread, which measures the difference between 30- 

year mortgage rates and 10-year Treasury bond yields, decreased 

by 8 percent since the Panel’s December 2010 report.442 The TED 

spread, which captures the difference between the 3-month LIBOR 

and the 3-month Treasury bill rates, serves as an indicator for perVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00114 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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443Federal Reserve Bank of Minneapolis, Measuring Perceived Risk—The TED Spread (Dec. 

2008) (online at www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4120). 444Federal Reserve Bank of St. Louis, What the LIBOR–OIS Spread Says (May 11, 2009) (online at research.stlouisfed.org/publications/es/09/ES0924.pdf). 445Data accessed through Bloomberg Data Service (Jan. 3, 2011). 446Data accessed through Bloomberg Data Service (Jan. 3, 2011). 

ceived risk in the financial markets.443 As of January 3, 2011, the 

spread was 18.3 basis points, increasing almost 30 percent in December. 

The LIBOR–OIS (Overnight Index Swap) spread serves as a metric for the health of the banking system, reflecting what banks believe to be the risk of default associated with interbank lending.444

The spread increased over threefold from early April to July 2010, 

before falling in mid-July.445 The LIBOR–OIS spread grew approximately 13 percent since the Panel’s December 2010 report. The decrease in both the LIBOR–OIS spread and the TED spread from 

the middle of 2010 suggests that hesitation among banks to lend 

to counterparties has receded. As shown in Figures 30 and 31 

below, these spreads remain below pre-crisis levels. 

FIGURE 30: TED SPREAD 446


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447Data accessed through Bloomberg Data Service (Jan. 3, 2011). 

FIGURE 31: LIBOR–OIS SPREAD 447

The interest rate spread on AA asset-backed commercial paper, 

which is considered mid-investment grade, decreased by almost 20 

percent since the Panel’s December 2010 report. The interest rate 

spread on A2/P2 commercial paper, a lower grade investment than 

AA asset-backed commercial paper, increased by approximately 10 

percent. Both interest rate spreads remain below pre-crisis levels. 

FIGURE 32: INTEREST RATE SPREADS (AS OF JANUARY 3, 2011) 

Indicator Current 

Spread 

Percent Change Since 

Last Report 

(12/1/2010) 

Conventional mortgage rate spread 448 ............................................................................ 1.44 (7 .7) 

TED Spread (basis points) ................................................................................................ 18.28 27 .5 

Overnight AA asset-backed commercial paper interest rate spread 449 .......................... 0.06 (19 .4) 

Overnight A2/P2 nonfinancial commercial paper interest rate spread 450 ...................... 0.14 9 .7 

448 Federal Reserve Statistical Release H.15, supra note 442; Board of Governors of the Federal Reserve System, Federal Reserve Statistical 

Release H.15: Selected Interest Rates: Historical Data (Instrument: U.S. Government Securities/Treasury Constant Maturities/Nominal 10–Year, 

Frequency: Weekly) (online at www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_TCMNOM_Y10.txt) (accessed Jan. 3, 2011). 449 The overnight AA asset-backed commercial paper interest rate spread reflects the difference between the AA asset-backed commercial paper discount rate and the AA nonfinancial commercial paper discount rate. Board of Governors of the Federal Reserve System, Federal Re- serve Statistical Release: Commercial Paper Rates and Outstandings: Data Download Program (Instrument: AA Asset-Backed Discount Rate, 

Frequency: Daily) (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Jan. 3, 2011); Board of Governors of the Fed- eral Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data Download Program (Instrument: AA 

Nonfinancial Discount Rate, Frequency: Daily) (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Jan. 3, 2011). In 

order to provide a more complete comparison, this metric utilizes the average of the interest rate spread for the last five days of December. 450 The overnight A2/P2 nonfinancial commercial paper interest rate spread reflects the difference between the A2/P2 nonfinancial commercial paper discount rate and the AA nonfinancial commercial paper discount rate. Board of Governors of the Federal Reserve System, Federal 

Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data Download Program (Instrument: A2/P2 Nonfinancial Discount 

Rate, Frequency: Daily) (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Jan. 3, 2011); Board of Governors of 

the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data Download Program (Instrument: AA Nonfinancial Discount Rate, Frequency: Daily) (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Jan. 3, 

2011). In order to provide a more complete comparison, this metric utilizes the average of the interest rate spread for the last five days of 

December. 

Corporate Bonds. The spread between Moody’s Baa Corporate 

Bond Yield Index and 30-year constant maturity U.S. Treasury 

Bond, which indicates the difference in perceived risk between corporate and government bonds, doubled from late April to mid-June 

2010. During December, the spread declined approximately 10 percent, and has fallen almost 30 percent since its post-crisis peak in 


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451Federal Reserve Bank of St. Louis, Series DGS30: Selected Interest Rates (Instrument: 30- 

Year Treasury Constant Maturity Rate, Frequency: Daily) (online at research.stlouisfed.org/ 

fred2/release?rid=18) (accessed Jan. 3, 2011). Corporate Baa rate data accessed through 

Bloomberg data service (Jan. 3, 2011). 452Loans in nonaccrual status include those that are: (a) maintained on a cash basis because 

of deterioration in the financial condition of the borrower; (b) full payment of principal or interest is not expected; or (c) principal or interest has been in default for 90 or more days. Federal 

Deposit Insurance Corporation, Schedule RC–N—Past Due and Nonaccrual Loans, Leases, and 

Other Assets, at 2 (online at www.fdic.gov/regulations/resources/call/crinst/2008-03/308RCN032808.pdf). 

mid-June. The declining spread could indicate waning concerns 

about the riskiness of corporate bonds. 

FIGURE 33: MOODY’S BAA CORPORATE BOND INDEX AND 30-YEAR U.S. TREASURY 

YIELD 451

2. Bank Conditions 

Net Charge-Offs and Nonperforming Loan Rates. Data on 

net charge-offs and nonperforming loans are beginning to reflect 

stabilizing loan quality in domestic banks. Net loan charge-offs represented 2.8 percent of all loans at the end of the third quarter of 

2010, falling 10 percent from the first quarter of 2010. Nonperforming loans as a percentage of all commercial bank loans have 

also declined. Nonperforming loans include loans that are in default for 90 or more days and nonaccrual loans.452 Since the beginning of 2010, this percentage has fallen from 5.6 percent to 5.2 percent at the end of the third quarter of 2010. 

Despite the recent decline, these two percentages remain well 

above their respective levels in October 2008. At the time, total net 

loan charge-offs accounted for only 1.2 percent of all loans, and 

nonperforming loans represented 2.3 percent of all loans. 


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453Federal Reserve Bank of St. Louis, Condition of Banking: Total Net Loan Charge-offs (online at research.stlouisfed.org/fred2/series/NCOTOT/downloaddata?cid=93) (accessed Jan. 3, 

2011). 454Federal Reserve Bank of St. Louis, Condition of Banking: Nonperforming Loans (Past Due 

90+ Days Plus Nonaccrual)/Total Loans for All U.S. Banks (online at research.stlouisfed.org/ 

fred2/series/USNPTL?cid=93) (accessed Jan. 3, 2011). 455Federal Deposit Insurance Corporation, Failures & Assistance Transactions (online at 

www2.fdic.gov/hsob/SelectRpt.asp?EntryTyp=30) (accessed Jan. 3, 2011) (hereinafter ‘‘FDIC Failures & Assistance Transactions’’). 

FIGURE 34: NET LOAN CHARGE-OFFS AS A PERCENTAGE OF TOTAL LOANS (AS OF Q3 

2010) 453

FIGURE 35: NONPERFORMING LOANS AS A PERCENTAGE OF TOTAL LOANS (AS OF Q3 

2010) 454

Bank Failures. In 2010, a total of 157 banks failed and were 

placed into receivership, with eight institutions failing in December. Despite exceeding the total number of bank failures for 2009, 

banks that failed in 2010 had $92.1 billion in total assets, which 

represents approximately half of the total assets of failed institutions in 2009.455 Most failures in 2010 involved institutions that 

held less than $10 billion in assets. 


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456The disparity between the number of and total assets of failed banks in 2008 is driven pri- marily by the failure of Washington Mutual Bank, which held $307 billion in assets. The 2010 

year-to-date percentage of bank failures includes failures through December. The total number 

of FDIC-insured institutions as of September 30, 2010 is 7,760 commercial banks and savings 

institutions, which represents a quarter-over-quarter decline of 70 institutions and a decrease 

of 624 institutions since the end of the third quarter of 2008. Furthermore, there are currently 

860 institutions on the FDIC’s ‘‘Problem List.’’ FDIC Failures & Assistance Transactions, supra 

note 455; Federal Deposit Insurance Corporation, Quarterly Banking Profile, Third Quarter 

2010: Statistics At A Glance, at 5 (online at www.fdic.gov/bank/statistical/stats/2010sep/industry.pdf) (accessed Jan. 3, 2011). Asset totals have been converted into 2005 dollars using the 

GDP implicit price deflator. The quarterly values were averaged into a yearly value. FDIC Failures & Assistance Transactions, supra note 455. 

FIGURE 36: BANK FAILURES AS A PERCENTAGE OF TOTAL BANKS AND BANK FAILURES 

BY TOTAL ASSETS (1990–2010) 456

3. Housing Indices 

Home Sales. Both new and existing home sales saw a monthover-month increase in November 2010, increasing 2 percent during the month. New home sales, as measured by the U.S. Census 

Bureau, increased 2 percent to 290,000 during the month. With respect to existing home sales, the National Association of Realtors 

estimates a 6 percent month-over-month increase in November, to 

an annual rate of 4.4 million homes sold. Although existing home 

sales in November remain below the ten-year historical average, 

current levels are above the July 2010 level, when existing home 

sales reached their lowest point in more than a decade. 


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457Data accessed through Bloomberg Data Service (Jan. 3, 2011). Spikes in both new and existing home sales in January 2009 and November 2009 correlate with the tax credits extended 

to first-time and repeat home buyers during these periods. After both tax credits were extinguished on April 30, 2010, existing home sales dropped to 3.8 million homes in July, their lowest 

level in a decade. National Association of Realtors, July Existing-Home Sales Fall as Expected 

but Prices Rise (Aug. 24, 2010) (online at www.realtor.org/press_room/news_releases/2010/08/ 

ehs_fall). 458 RealtyTrac, Foreclosure Activity Decreases 21 Percent in November (Dec. 16, 2010) (online 

at www.realtytrac.com/content/press-releases/foreclosure-activity-decreases-21-percent-in-november-6251) (hereinafter ‘‘RealtyTrac—Foreclosure Activity Decreases’’). 459For more information on foreclosure irregularities, see November 2010 Oversight Report, 

supra note 369. 460Data accessed through Bloomberg Data Service (Jan. 3, 2011). 461The most recent data available are for September 2010. See Standard and Poor’s, S&P/ 

Case-Shiller Home Price Indices (Instrument: Case-Shiller 20-City Composite Seasonally Adjusted, Frequency: Monthly) (online at www.standardandpoors.com/indices/sp-case-shiller-homeprice-indices/en/us/?indexId=spusa-cashpidff--us----) (accessed Jan. 3, 2011) (hereinafter ‘‘S&P/ 

Case-Shiller Home Price Indices’’); Federal Housing Finance Agency, U.S. and Census Division 

Monthly Purchase Only Index (Instrument: USA, Seasonally Adjusted) (online at www.fhfa.gov/ 

Default.aspx?Page=87) (accessed Jan. 3, 2011) (hereinafter ‘‘FHFA Monthly Purchase Only 

Index’’). S&P has cautioned that the seasonal adjustment is probably being distorted by irregular factors. These factors could include distressed sales and the various government programs. 

See Standard and Poor’s, S&P/Case-Shiller Home Price Indices and Seasonal Adjustment (Apr. 

2010) (online at www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDTType&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline;+filename%3D 

CaseShiller_SeasonalAdjustment2,0.pdf&blobheadername2=ContentDisposition&blobheadervalue1=application/pdf&blobkey=id&blobheadername1=content-type 

FIGURE 37: NEW AND EXISTING HOME SALES (2000–2010) 457

Foreclosures. Foreclosure actions, which consist of default notices, scheduled auctions, and bank repossessions, decreased 21 

percent in November 2010 to 262,339, marking the first month 

since February 2009 that foreclosure filings have been below 

300,000.458 However, it is important to note that much of the decline could be attributed to a number of loan servicers suspending 

foreclosures in the fall of 2010 as they conducted internal reviews 

of their foreclosure procedures.459 Since the enactment of EESA, 

there have been approximately 8.4 million foreclosure filings.460

Home Prices. With respect to housing price indices, the CaseShiller Composite 20-City Composite Home Price Index decreased 

by less than 1 percent, while the FHFA Housing Price Index increased by less than 1 percent in October 2010. The Case-Shiller 

and FHFA indices are approximately 8 percent and 5 percent below 

their respective October 2008 levels.461


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&blobwhere=1243679046081&blobheadervalue3=UTF-8). For a discussion of the differences between the Case-Shiller Index and the FHFA Index, see Congressional Oversight Panel, April 

Oversight Report: Evaluating Progress on TARP Foreclosure Mitigation Programs, at 98 (Apr. 

14, 2010) (online at cop.senate.gov/documents/cop-041410-report.pdf). 462Data accessed through Bloomberg Data Service (Jan. 3, 2011). The Case-Shiller Futures 

contract is traded on the Chicago Mercantile Exchange (CME) and is settled to the Case-Shiller 

Index two months after the previous calendar quarter. For example, the February contract will 

be settled against the spot value of the S&P Case-Shiller Home Price Index values representing 

the fourth calendar quarter of the previous year, which is released in February one day after 

the settlement of the contract. Note that most close observers believe that the accuracy of these 

futures contracts as forecasts diminishes the farther out one looks. 

A Metropolitan Statistical Area is defined as a core area containing a substantial population 

nucleus, together with adjacent communities having a high degree of economic and social integration with the core. U.S. Census Bureau, About Metropolitan and Micropolitan Statistical 

Areas (online at www.census.gov/population/www/metroareas/aboutmetro.html) (accessed Dec. 

10, 2010). 

Case-Shiller futures prices indicate a market expectation that 

home-price values for the major Metropolitan Statistical Areas 

(MSAs) will decrease through 2011.462 These futures are cash-settled to a weighted composite index of U.S. housing prices in the top 

ten MSAs, as well as to those specific markets. They are used to 

hedge by businesses whose profits and losses are related to a specific area of the housing industry, and to balance portfolios by businesses seeking exposure to an uncorrelated asset class. As such, futures prices are a composite indicator of market information known 

to date and can be used to indicate market expectations for home 

prices. 

FIGURE 38: HOUSING INDICATORS 

Indicator Most Recent 

Monthly Data 

Percent Change from 

Data Available at 

Time of Last Report 

Percent 

Change Since 

October 2008 

Monthly foreclosure actions 463 .................................................................. 262,339 (21 .0) (6.2) 

S&P/Case-Shiller Composite 20 Index 464 .................................................. 143.52 (0 .1) (8.2) 

FHFA Housing Price Index 465 ..................................................................... 190.83 0 .2 (5.4) 

463 RealtyTrac—Foreclosure Activity Decreases, supra note 458. The most recent data available are for November 2010. 464 S&P/Case-Shiller Home Price Indices, supra note 461. The most recent data available are for October 2010. 465 FHFA Monthly Purchase Only Index, supra note 461. The most recent data available are for October 2010. 


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466 All data normalized to 100 in January 2000. Futures data accessed through Bloomberg 

Data Service (Jan. 3, 2011). S&P/Case-Shiller Home Price Indices, supra note 461. 467 U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report 

as of September 30, 2010 (Oct. 11, 2010) (online at financialstability.gov/docs/dividends-interestreports/September%202010%20Dividends%20&%20Interest%20Report.pdf); Treasury Transactions Report, supra note 24. 468The original $700 billion TARP ceiling was reduced by $1.26 billion as part of the Helping 

Families Save Their Homes Act of 2009. 12 U.S.C. § 5225(a)–(b) (online at www.gpo.gov/fdsys/ 

pkg/PLAW-111publ22/pdf/PLAW-111publ22.pdf). On June 30, 2010, the House-Senate Conference Committee agreed to reduce the amount authorized under the TARP from $700 billion 

to $475 billion as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that 

was signed into law on July 21, 2010. See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111–203 (2010) (online at www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/ 

PLAW-111publ203.pdf); The White House, Remarks by the President at Signing of Dodd-Frank 

Wall Street Reform and Consumer Protection Act (July 21, 2010) (online at www.whitehouse.gov/ 

the-press-office/remarks-president-signing-dodd-frank-wall-street-reform-and-consumer-protection-act). 

FIGURE 39: CASE-SHILLER HOME PRICE INDEX AND FUTURES VALUES 466

C. Financial Update 

Each month, the Panel summarizes the resources that the federal government has committed to the rescue and recovery of the 

financial system. The following financial update provides: (1) an 

updated accounting of the TARP, including a tally of dividend income, repayments, and warrant dispositions that the program has 

received as of November 30, 2010; and (2) an updated accounting 

of the full federal resource commitment as of December 30, 2010. 

1. The TARP 

a. Program Updates 467

Treasury’s spending authority under the TARP officially expired 

on October 3, 2010. Though it can no longer make new funding 

commitments, Treasury can continue to provide funding for programs for which it has existing contracts and previous commitments. To date, $396.2 billion has been spent under the TARP’s 

$475 billion ceiling.468 Of the total amount disbursed, $240.4 billion has been repaid. Treasury has also incurred $6.1 billion in 

losses associated with its Capital Purchase Program (CPP) and 

Automotive Industry Financing Program (AIFP) investments. 

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469This figure is comprised of the $4.2 billion in net proceeds from the sale of Citigroup com- mon stock between April 26 and December 6, 2010 as well as $2.7 billion in proceeds from the 

December 6 equity underwriting. 471The $34.4 billion currently outstanding reflects the $2.6 billion in announced losses associated with the program. See Figure 42 for further details on losses associated with programs. 472For its CPP investments in privately held financial institutions, Treasury also received 

warrants to purchase additional shares of preferred stock, which it exercised immediately. Similarly, Treasury received warrants to purchase additional subordinated debt that were immediately exercised along with its CPP investments in subchapter S corporations. Treasury Transactions Report, supra note 24, at 14. 

standing relates to Treasury’s investments in AIG and assistance 

provided to the automotive industry. 

CPP Repayments 

As of December 30, 2010, 131 of the 707 banks that participated 

in the CPP have fully redeemed their preferred shares either 

through capital repayment or exchanges for investments under the 

Community Development Capital Initiative (CDCI). During December 2010, Treasury received the funds from the sale of the final 

outstanding Citigroup shares, equaling full repayment of the $25 

billion investment as well as an additional $6.9 billion in profit 

from the sale of these shares.469 An additional 14 banks fully re- paid their remaining CPP capital, returning $3.3 billion in principal to Treasury. See Figure 40 below for repayment amounts. 

FIGURE 40: BANKS THAT FULLY REPAID THEIR CPP LOANS IN DECEMBER 2010 470

Bank Amount Repaid Remaining Investment 

First Horizon National Corporation ...................................................................... $866,540,000 Warrants 

Huntington Bancshares ....................................................................................... 1,398,071,000 Warrants 

Heritage Financial Corporation ............................................................................ 24,000,000 Warrants 

First PacTrust Bancorp, Inc. ................................................................................ 19,300,000 Warrants

East West Bancorp .............................................................................................. 406,546,000 Warrants 

Wintrust Financial Corporation ............................................................................ 250,000,000 Warrants 

Capital Bancorp, Inc. ........................................................................................... 4,700,000 None 

Surrey Bancorp ..................................................................................................... 2,000,000 None 

1st Source Corporation ........................................................................................ 111,000,000 None 

California Oaks State Bank ................................................................................. 3,300,000 None 

The Bank of Currituck ......................................................................................... 1,742,850 None 

Haviland Bancshares, Inc. ................................................................................... 425,000 None 

Signature Bancshares, Inc. ................................................................................. 1,700,000 None 

Nationwide Bankshares, Inc. ............................................................................... 2,000,000 None 

Total ..................................................................................................................... $3,332,871,850 

470 Treasury Transactions Report, supra note 24. 

Additionally, during December 2010, United Financial Banking 

Companies, Inc. made a partial repayment of $3 million, and The 

Bank of Kentucky Financial Corporation made a partial repayment 

of $17 million. A total of $167.9 billion has been repaid under the 

program, leaving $34.4 billion in funds currently outstanding.471

b. Income: Dividends, Interest, and Warrant Sales 

In conjunction with its preferred stock investments under the 

CPP and the Targeted Investment Program (TIP), Treasury generally received warrants to purchase common equity.472 As of December 30, 2010, 46 institutions have repurchased their warrants 

from Treasury at an agreed-upon price. Treasury has also sold warVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00123 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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473 U.S. Department of the Treasury, Capital Purchase Program (Oct. 3, 2010) (online at 

www.financialstability.gov/roadtostability/capitalpurchaseprogram.html). 474 U.S. Department of the Treasury, Targeted Investment Program (Oct. 3, 2010) (online at 

www.financialstability.gov/roadtostability/targetedinvestmentprogram.html). 475 U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report 

as of November 30, 2010 (Dec. 10, 2010) (online at financialstability.gov/docs/dividends-interestreports/November%202010%20Dividends%20&%20Interest%20Report.pdf) (hereinafter ‘‘Cumulative Dividends, Interest and Distributions Report’’); Treasury Transactions Report, supra note 

24. Treasury also received an additional $1.2 billion in participation fees from its Guarantee 

Program for Money Market Funds. U.S. Department of the Treasury, Treasury Announces Expiration of Guarantee Program for Money Market Funds (Sept. 18, 2009) (online at 

www.treasury.gov/press-center/press-releases/Pages/tg293.aspx). 

rants for 15 other institutions at auction. To date, income from 

warrant dispositions totals $8.2 billion. 

In addition to warrant proceeds, Treasury also receives dividend 

payments on the preferred shares that it holds under the CPP, 5 

percent per year for the first five years and 9 percent per year 

thereafter.473 For preferred shares issued under the TIP, Treasury 

received a dividend of 8 percent per year.474 In total, Treasury has received approximately $30.3 billion in net income from warrant 

repurchases, dividends, interest payments, profit from the sale of 

stock, and other proceeds deriving from TARP investments, after 

deducting losses.475 For further information on TARP profit and 

loss, see Figure 42. 


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c. TARP Accounting 

FIGURE 41: TARP ACCOUNTING (AS OF DECEMBER 30, 2010) 

[billions of dollars] i

Program 

Maximum 

Amount 

Allotted 

Actual 

Funding 

Total 

Repayments/ 

Reduced 

Exposure 

Total 

Losses 

Funding 

Currently 

Outstanding 

Funding 

Available 

Capital Purchase Program (CPP) $204.9 $204.9 ii $(167.9) iii$(2.6) $34.4 $0 

Targeted Investment Program 

(TIP) .......................................... 40.0 40.0 (40.0) 0 0 0 

Asset Guarantee Program (AGP) .. 5.0 iv 5.0 v (5.0) 0 0 0 

AIG Investment Program (AIGIP) .. 69.8 vi 47.5 0 0 47.5 22.3 

Auto Industry Financing Program 

(AIFP) ........................................ 81.3 81.3 (26.4) vii (3.5) viii 51.4 0 

Auto Supplier Support Program 

(ASSP)ix .................................... 0.4 0.4 (0.4) 0 0 0 

Term Asset-Backed Securities 

Loan Facility (TALF) ................. x 4.3 xi 0.1 0 0 0.1 4.2 

Public-Private Investment Program (PPIP) xii ......................... 22.4 xiii 15.1 xiv (0.6) 0 14.5 7.4 

SBA 7(a) Securities Purchase Program ......................................... 0.4 xv 0.4 0 0 0.4 xvi 0 

Home Affordable Modification 

Program (HAMP) ....................... 29.9 0.8 0 0 0.7 29.1 

Hardest Hit Fund (HHF) ................ xvii 7.6 xviii 0.1 0 0 0.1 7.5 

FHA Refinance Program ............... 8.1 xix 0.1 0 0 0.1 8.0 

Community Development Capital 

Initiative (CDCI) ....................... 0.8 xx 0.6 0 0 0.6 0 

Total ............................................. $475.0 $396.2 $(240.4) $(6.1) $149.8 $78.5 

iFigures affected by rounding. Unless otherwise noted, data in this table are from the following sources: U.S. Department of the Treasury, 

Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf); U.S. Department of the 

Treasury, Troubled Assets Relief Program Monthly 105(a) Report—November 2010 (Dec. 10, 2010) (online at 

www.financialstability.gov/docs/November%20105(a)%20FINAL.pdf. ii In June 2009, Treasury exchanged $25 billion in Citigroup preferred stock for 7.7 billion shares of the company’s common stock at $3.25 

per share. As of December 30, 2010, Treasury had sold the entirety of its Citigroup common shares for $31.85 billion in gross proceeds. The amount repaid under CPP includes $25 billion Treasury received as part of its sales of Citigroup common stock. The difference between these two numbers represents the $6.85 billion in net profit Treasury has received from the sale of Citigroup common stock. 

Total CPP repayments also include amounts repaid by institutions that exchanged their CPP investments for investments under the CDCI, 

as well as proceeds earned from the sale of preferred stock issued by South Financial Group, Inc., TIB Financial Corp, and the Bank of Currituck. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, 

at 2, 13–15 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf); U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 25 (Oct. 2010) (online at 

www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf); U.S. Department of the 

Treasury, Treasury Commences Plan to Sell Citigroup Common Stock (Apr. 26, 2010) (online at 

www.treasury.gov/press-center/press-releases/Pages/tg660.aspx). iii In the TARP Transactions Report, Treasury has classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific 

Coast National Bancorp ($4.1 million), as losses. In addition, Treasury sold its preferred ownership interests, along with warrants, in South Financial Group, Inc., TIB Financial Corp., and the Bank of Currituck to non-TARP participating institutions. These shares were sold at prices 

below the value of the original CPP investment, at respective losses of $217 million, $25 million, and $2.3 million. Therefore, Treasury’s net 

current CPP investment is $34.4 billion due to the $2.6 billion in losses thus far. See U.S. Department of the Treasury, Troubled Asset Relief 

Program Transactions Report for the Period Ending December 30, 2010, at 1–14 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). iv The $5.0 billion AGP guarantee for Citigroup was unused since Treasury was not required to make any guarantee payments during the life of the program. U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 31 (Oct. 2010) (online at 

www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf); U.S. Department of the 

Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 20 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). v Although this $5.0 billion is no longer exposed as part of the AGP, Treasury did not receive a repayment in the same sense as with other investments. Treasury did receive other income as consideration for the guarantee, which is not a repayment and is accounted for in Figure 42. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 20 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). 


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vi AIG has completely utilized the $40 billion that was made available on November 25, 2008, in exchange for the company’s preferred 

stock. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 

21 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). It has also drawn down 

$7.5 billion of the $29.8 billion made available on April 17, 2009. American International Group, Inc., Form 10–Q for the Quarterly Period 

Ended September 30, 2010, at 119 (Nov. 5, 2010) (online at sec.gov/Archives/edgar/data/5272/000104746910009269/a2200724z10-q.htm). This 

figure does not include $1.6 billion in accumulated but unpaid dividends owed by AIG to Treasury due to the restructuring of Treasury’s investment from cumulative preferred shares to non-cumulative shares. See U.S. Department of the Treasury, Troubled Asset Relief Program 

Transactions Report for the Period Ending December 30, 2010, at 21 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). AIG expects to draw 

down up to $22.3 billion in unutilized funds from the TARP as part of its plan to repay the revolving credit facility provided by the Federal 

Reserve Bank of New York. American International Group, Inc., AIG Announces Plan to Repay U.S. Government (Sept. 30, 2010) (online at 

www.aigcorporate.com/newsroom/2010_September/AIGAnnouncesPlantoRepay30Sept2010.pdf); vii On May 14, 2010, Treasury accepted a $1.9 billion settlement payment for its $3.5 billion loan to Chrysler Holding. The payment represented a $1.6 billion loss from the termination of the debt obligation. See U.S. Department of the Treasury, Chrysler Financial Parent Company Repays $1.9 Billion in Settlement of Original Chrysler Loan (May 17, 2010) (online at 

www.financialstability.gov/latest/pr_05172010c.html); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for 

the Period Ending December 30, 2010, at 18–19 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). Also, following the 

bankruptcy proceedings for Old Chrysler, which extinguished the $1.9 billion debtor-in-possession (DIP) loan provided to Old Chrysler, Treasury 

retained the right to recover the proceeds from the liquidation of specified collateral. Although Treasury does not expect a significant recovery 

from the liquidation proceeds, Treasury is not yet reporting this loan as a loss in the TARP Transactions Report. As of December 30, 2010, 

Treasury had collected $48.1 million in proceeds from the sale of collateral. Treasury included these proceeds as part of the $26.4 billion repaid under the AIFP. U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—September 2010 (Oct. 12, 

2010) (online at www.financialstability.gov/docs/105CongressionalReports/September 105(a) report_FINAL.pdf); Treasury conversations with Panel 

staff (Aug. 19, 2010 and Nov. 29, 2010); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period 

Ending December 30, 2010, at 18 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). viii In the TARP Transactions Report, the $1.9 billion Chrysler debtor-in-possession loan, which was extinguished April 30, 2010, was de- ducted from Treasury’s current AIFP investment amount. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report 

for the Period Ending December 30, 2010, at 18 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). See endnote vii, supra, for details on losses from Treasury’s investment in Chrysler. ix On April 5, 2010, Treasury terminated its commitment to lend to the GM special purpose vehicle (SPV) under the ASSP. On April 7, 2010, 

it terminated its commitment to lend to the Chrysler SPV. In total, Treasury received $413 million in repayments from loans provided by this 

program ($290 million from the GM SPV and $123 million from the Chrysler SPV). Further, Treasury received $101 million in proceeds from 

additional notes associated with this program. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 19 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xFor the TALF, $1 of TARP funds was committed for every $10 of funds obligated by the Federal Reserve. The program was intended to be a $200 billion initiative, and the TARP was responsible for the first $20 billion in loan-losses, if any were incurred. The loan was incremen- tally funded. When the program closed in June 2010, a total of $43 billion in loans was outstanding under the TALF, and the TARP’s commit- ments constituted $4.3 billion. The Federal Reserve Board of Governors agreed that it was appropriate for Treasury to reduce TALF credit protection from the TARP to $4.3 billion. Board of Governors of the Federal Reserve System, Federal Reserve Announces Agreement with the 

Treasury Department Regarding a Reduction of Credit Protection Provided for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 

2010) (online at www.federalreserve.gov/newsevents/press/monetary/20100720a.htm). xi As of January 5, 2011, Treasury had provided $106 million to TALF LLC. This total is net of accrued interest payable to Treasury. Board 

of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Jan. 3, 2010) (online at 

www.federalreserve.gov/releases/h41/20110106/). xii As of September 30, 2010, the total value of securities held by the PPIP fund managers was $19.3 billion. Non-agency residential 

mortgage-backed securities represented 82 percent of the total; commercial mortgage-backed securities represented the balance. U.S. Department of the Treasury, Legacy Securities Public-Private Investment Program, Program Update—Quarter Ended September 30, 2010, at 4 (Oct. 

20, 2010) (online at www.financialstability.gov/docs/External%20Report%20-%2009-10%20vFinal.pdf). xiii U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—November 2010, at 4 (Dec. 10, 2010) (online at 

www.financialstability.gov/docs/November%20105(a)%20FINAL.pdf). xiv As of December 30, 2010, Treasury has received $593 million in capital repayments from two PPIP fund managers. U.S. Department of 

the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 23 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xv As of December 30, 2010, Treasury’s purchases under the SBA 7(a) Securities Purchase Program totaled $368.1 million. U.S. Department 

of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 22 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xviTreasury will not make additional purchases pursuant to the expiration of its purchasing authority under EESA. U.S. Department of the 

Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 43 (Oct. 2010) (online at 

www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf). xvii On June 23, 2010, $1.5 billion was allocated to mortgage assistance through the Hardest Hit Fund (HHF). Another $600 million was approved on August 3, 2010. U.S. Department of the Treasury, Obama Administration Approves State Plans for $600 million of ‘Hardest Hit 

Fund’ Foreclosure Prevention Assistance (Aug. 3, 2010) (online at www.financialstability.gov/latest/pr_08042010.html). As part of its revisions 

to TARP allocations upon enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Treasury allocated an additional $2 

billion in TARP funds to mortgage assistance for unemployed borrowers through the HHF. U.S. Department of the Treasury, Obama Administration Announces Additional Support for Targeted Foreclosure-Prevention Programs to Help Homeowners Struggling with Unemployment (Aug. 11, 

2010) (online at www.financialstability.gov/latest/pr_08112010.html). In October 2010, another $3.5 billion was allocated among the 18 states 

and the District of Columbia currently participating in HHF. The amount each state received during this round of funding is proportional to its 

population. U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 72 (Oct. 2010) (online at 

www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf). xviii As of December 31, 2010, a total of $103.6 million has been disbursed to 12 state Housing Finance Agencies (HFAs). Data provided by 

Treasury (Jan. 4, 2011). xixThis figure represents the amount Treasury disbursed to fund the advance purchase account of the Letter of Credit issued under the FHA 

Short Refinance Program. The $53.3 million in the FHA Short Refinance program is broken down as follows: $50 million for a deposit into an 

advance purchase account as collateral to the initial $50 million Letter of Credit, $2.9 million for the closing and funding of the Letter of 

Credit, $115,000 in trustee fees, $175,000 in claims processor fees, and $156,000 for an unused commitment fee for the Letter of Credit. 

Data provided by Treasury (Dec. 2, 2010). xx U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 1–13, 

16–17 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). Treasury closed the program on September 30, 2010, after investing $570 million in 84 CDFIs. U.S. Department of the Treasury, Treasury Announces Special Financial 

Stabilization Initiative Investments of $570 Million in 84 Community Development Financial Institutions in Underserved Areas (Sept. 30, 2010) 

(online at www.financialstability.gov/latest/pr_09302010b.html). 


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FIGURE 42: TARP PROFIT AND LOSS 

(millions of dollars) 

TARP Initiative xxi

Dividends xxii

(as of 

11/30/2010) 

Interest xxiii

(as of 

11/30/2010) 

Warrant 

Disposition 

Proceeds xxiv

(as of 

12/30/2010) 

Other 

Proceeds 

(as of 

11/30/2010) 

Losses xxv

(as of 

12/30/2010) 

Total 

Total ..................... $17,345 $1,083 $8,160 $9,801 ($6,066) $30,353 

CPP ....................... 10,169 59 6,905 xxvi 6,852 (2,578) 21,407 

TIP ......................... 3,004 – 1,256 – – 4,260 

AIFP ....................... xxvii 3,729 931 – xxviii 15 (3,488) 1,217 

ASSP ..................... – 15 – xxix 101 – 116 

AGP ....................... 443 – – xxx 2,246 – 2,689 

PPIP ...................... – 76 – xxxi 310 – 386 

SBA 7(a) ............... – 3 – – – 3 

Bank of America 

Guarantee ......... – – – xxxii 276 – 276 

xxi AIG is not listed in this table because no profit or loss has been recorded to date for AIG. Its missed dividends were capitalized as 

part of the issuance to Treasury of Series E preferred shares and are not considered to be outstanding. Treasury currently holds 

non-cumulative preferred shares, meaning AIG is not penalized for non-payment. Therefore, no profit or loss has been realized on Treasury’s 

AIG investment to date. 

HAMP is not listed in this table because HAMP is a 100 percent subsidy program, and no profit is expected. 

xxii U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of November 30, 2010 (Dec. 10, 2010) (online at www.financialstability.gov/docs/dividends-interest-reports/November%202010%20Dividends%20&%20Interest%20Report.pdf). xxiii U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of November 30, 2010 (Dec. 10, 2010) 

(online at www.financialstability.gov/docs/dividends-interest-reports/November%202010%20Dividends%20&%20Interest%20Report.pdf). xxiv U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010 (Dec. 30, 

2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xxv In the TARP Transactions Report, Treasury classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific 

Coast National Bancorp ($4.1 million), as losses. Treasury has also sold its preferred ownership interests and warrants from South Financial 

Group, Inc., TIB Financial Corp., and the Bank of Currituck. This represents a $244.0 million loss on its CPP investments in these three 

banks. Two TARP recipients, UCBH Holdings, Inc. ($298.7 million) and a banking subsidiary of Midwest Banc Holdings, Inc. ($89.4 million), 

are currently in bankruptcy proceedings. As of November 26, three TARP recipients, Pierce County Bancorp, Sonoma Valley Bancorp, and Tifton 

Banking Company, had entered receivership. Cumulatively, these three had received $19.3 million in TARP funding. U.S. Department of the 

Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xxviThis figure represents net proceeds to Treasury from the sale of Citigroup common stock to date. For details on Treasury’s sales of 

Citigroup common stock, see endnote ii, supra. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the 

Period Ending December 30, 2010, at 15 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf); U.S. Department of the 

Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 25 (Oct. 2010) (online at 

www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf). xxviiThis figure includes $815 million in dividends from GMAC/Ally Financial preferred stock, trust preferred securities, and mandatory con- vertible preferred shares. The dividend total also includes a $748.6 million senior unsecured note from Treasury’s investment in General Mo- tors. U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of November 30, 2010 (Dec. 10, 2010) (online at financialstability.gov/docs/dividends-interest-reports/November%202010%20Dividends%20&%20Interest%20Report.pdf); Data provided by 

Treasury (May 7, 2010). xxviiiTreasury received proceeds from an additional note connected with the loan made to Chrysler Financial on January 16, 2009. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 18 (Dec. 30, 2010) 

(online at www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xxix This represents the total proceeds from additional notes connected with Treasury’s investments in GM Supplier Receivables LLC and 

Chrysler Receivables SPV LLC. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 19 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xxx As a fee for taking a second-loss position of up to $5 billion on a $301 billion pool of ring-fenced Citigroup assets as part of the 

AGP, Treasury received $4.03 billion in Citigroup preferred stock and warrants. Treasury exchanged these preferred stocks for trust preferred 

securities in June 2009. Following the early termination of the guarantee in December 2009, Treasury cancelled $1.8 billion of the trust preferred securities, leaving Treasury with $2.23 billion in Citigroup trust preferred securities. On September 30, 2010, Treasury sold these securities for $2.25 billion in total proceeds. At the end of Citigroup’s participation in the FDIC’s Temporary Liquidity Guarantee Program (TLGP), the 

FDIC may transfer $800 million of $3.02 billion in Citigroup Trust Preferred Securities it received in consideration for its role in the AGP to 

Treasury. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 20 

(Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf); U.S. Department of the 

Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Citigroup Inc., Termination Agreement, 

at 1 (Dec. 23, 2009) (online at 

www.financialstability.gov/docs/Citi%20AGP%20Termination%20Agreement%20-%20Fully%20Executed%20Version.pdf); U.S. Department of the 

Treasury, Treasury Announces Further Sales of Citigroup Securities and Cumulative Return to Taxpayers of $41.6 Billion (Sept. 30, 2010) (online at financialstability.gov/latest/pr_09302010c.html); Federal Deposit Insurance Corporation, 2009 Annual Report, at 87 (June 30, 2010) (online at www.fdic.gov/about/strategic/report/2009annualreport/AR09final.pdf). xxxi As of November 30, 2010, Treasury has earned $289.6 million in membership interest distributions from the PPIP. Additionally, Treasury 

has earned $20.6 million in total proceeds following the termination of the TCW fund. See U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of November 30, 2010, at 14 (Dec. 10, 2010) (online at 

financialstability.gov/docs/dividends-interest-reports/November%202010%20Dividends%20&%20Interest%20Report.pdf); U.S. Department of the 

Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 23 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xxxii Although Treasury, the Federal Reserve, and the FDIC negotiated with Bank of America regarding a similar guarantee, the parties

never reached an agreement. In September 2009, Bank of America agreed to pay each of the prospective guarantors a fee as though the 

guarantee had been in place during the negotiations period. This agreement resulted in payments of $276 million to Treasury, $57 million to 

the Federal Reserve, and $92 million to the FDIC. U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal 

Deposit Insurance Corporation, and Bank of America Corporation, Termination Agreement, at 1–2 (Sept. 21, 2009) (online at 

www.financialstability.gov/docs/AGP/BofA%20-%20Termination%20Agreement%20-%20executed.pdf). 


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476 Cumulative Dividends, Interest and Distributions Report, supra note 475, at 20. 477This figure does not include banks with missed dividend payments that have either repaid 

all delinquent dividends, exited the TARP, gone into receivership, or filed for bankruptcy. 478Fifteen of these institutions made payments later. The 21 institutions also include those 

that have either (a) fully repaid their CPP investment and exited the program or (b) entered 

bankruptcy or their subsidiary was placed into receivership. Cumulative Dividends, Interest and 

Distributions Report, supra note 475, at 21. 479 U.S. Department of the Treasury, Frequently Asked Questions: Capital Purchase Program 

(CPP): Related to Missed Dividend (or Interest) Payments and Director Nomination (online at 

www.financialstability.gov/docs/CPP/CPP%20Directors%20FAQs.pdf) (accessed Jan. 11, 2011). 

d. CPP Unpaid Dividend and Interest Payments 476

As of November 30, 2010, 140 institutions have missed at least 

one dividend payment on outstanding preferred stock issued under 

the CPP.477 Among these institutions, 111 are not current on cumulative dividends, amounting to $151.5 million in missed payments. Another 29 banks have not paid $9.7 million in non-cumulative dividends. Of the $49.5 billion currently outstanding in CPP 

funding, Treasury’s investments in banks with non-current dividend payments total $7.2 billion. A majority of the banks that remain delinquent on dividend payments have under $1 billion in 

total assets on their balance sheets. Also, there are 21 institutions 

that no longer have outstanding unpaid dividends, after previously 

deferring their quarterly payments.478

Twelve banks have failed to make six dividend payments, six 

banks have missed seven quarterly payments, and one bank has 

missed all eight quarterly payments. These institutions have received a total of $897.2 million in CPP funding. Under the terms 

of the CPP, after a bank fails to pay dividends for six periods, 

Treasury has the right to elect two individuals to the company’s 

board of directors.479 Figure 43 below provides further details on 

the distribution and the number of institutions that have missed 

dividend payments. 

In addition, eight CPP participants have missed at least one interest payment, representing $4.0 million in cumulative unpaid interest payments. Treasury’s total investments in these non-public 

institutions represent less than $1 billion in CPP funding. 

FIGURE 43: CPP MISSED DIVIDEND PAYMENTS (AS OF NOVEMBER 30, 2010) 480

Number of Missed Payments 1 2 3 4 5 6 7 8 Total 

Cumulative Dividends 

Number of Banks, by asset size ................................................................. 17 28 20 20 14 9 3 0 111 

Under $1B ........................................................................................... 10 21 17 16 9 6 1 0 80 

$1B–$10B ........................................................................................... 6 6 3 3 5 3 2 0 28 

Over $10B ........................................................................................... 1 1 0 1 0 0 0 0 3 

Non-Cumulative Dividends 

Number of Banks, by asset size ................................................................. 6 1 6 6 3 3 3 1 29 

Under $1B ........................................................................................... 5 1 6 5 3 3 3 1 27 

$1B–$10B ........................................................................................... 0 0 0 1 0 0 0 0 1 

Over $10B ........................................................................................... 1 0 0 0 0 0 0 0 1 

Total Banks Missing Payments .................................................................. .... .... .... .... .... .... .... .... 140 

Total Missed Payments ............................................................................... .... .... .... .... .... .... .... .... 470 

480 Cumulative Dividends, Interest and Distributions Report, supra note 475, at 17–20. Data on total bank assets compiled using SNL Financial data service (accessed Jan. 6, 2011). 


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481Treasury Transactions Report, supra note 24, at 13. 

e. CPP Losses 

As of December 30, 2010, Treasury has realized a total of $2.6 

billion in losses from investments in five CPP participants. CIT 

Group Inc. and Pacific Coast National Bancorp have both completed bankruptcy proceedings, and the preferred stock and warrants issued by the South Financial Group, TIB Financial Corp., 

and the Bank of Currituck were sold to third-party institutions at 

a discount. Excluded from Treasury’s total losses are investments 

in institutions that have pending receivership or bankruptcy proceedings, as well as an institution that is currently the target of 

an acquisition.481 Settlement of these transactions and proceedings 

would increase total losses in the CPP to $3.0 billion. Figure 44 

below details settled and unsettled investment losses from CPP 

participants that have declared bankruptcy, been placed into receivership, or renegotiated the terms of their CPP contracts. 


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FIGURE 44: CPP SETTLED AND UNSETTLED LOSSES 482

Institution Investment Amount Investment Disposition Amount Warrant Disposition Amount Dividends & Interest Possible Losses/ Reduced Exposure Action 

Cadence Financial Corporation .................................................. $44,000,000 $38,000,000 – $2,970,000 $(6,000,000) 10/29/2010: Treasury agreed to sell preferred stock and warrants issued by Cadence Financial to Community Bancorp 

LLC for $38 million plus accrued and unpaid dividends. Completion of the sale subject to fulfillment of certain closing conditions. 

Capital Bank Corporation 483 ..................................................... 41,279,000 – – 3,457,117 (20,639,500) 11/9/2010: Capital Bank Corp. is seeking to enter an agreement with Treasury pursuant to which the company will 

repurchase outstanding TARP preferred shares at 50 percent of liquidation value, plus accrued unpaid dividends. The company will use cash proceeds from its acquisition by North American Financial Holdings Inc. As of Nov. 30, 2010, no agreement has been reached between Capital Bank Corp. and Treasury. 

CIT Group Inc.* .......................................................................... 2,330,000,000 – – 43,687,500 (2,330,000,000) 12/10/2009: Bankruptcy reorganization plan for CIT Group 

Inc. became effective. CPP preferred shares and warrants were extinguished and replaced with contingent value rights (CVR). On Feb. 8, 2010, the CVRs expired without value. 

Midwest Banc Holdings, Inc ...................................................... 89,388,000 – – 824,289 (89,388,000) 5/14/2010: Midwest Banc Holdings, Inc. subsidiary, Midwest 

Bank and Trust, Co., placed into receivership. Midwest Banc Holdings is currently in bankruptcy proceedings. 

Pacific Coast National Bancorp* ............................................... 4,120,000 – – 18,088 (4,120,000) 2/11/2010: Pacific Coast National Bancorp dismissed its 

bankruptcy proceedings without recovery to creditors or investors. Investments, including Treasury’s CPP investments, were extinguished. 

Pierce County Bancorp ............................................................... 6,800,000 – – 207,948 (6,800,000) 11/5/2010: Pierce County Bancorp subsidiary, Pierce Commercial Bank, placed into receivership. 

Sonoma Valley Bancorp ............................................................. 8,653,000 – – 347,164 (8,653,000) 8/20/2010: Sonoma Valley Bancorp subsidiary, Sonoma Valley 

Bank, placed into receivership. 

South Financial Group* ............................................................. 347,000,000 130,179,219 $400,000 16,386,111 (216,820,781) 9/30/2010: Preferred stock and warrants sold to 

Toronto-Dominion Bank. 

The Bank of Currituck* .............................................................. 4,021,000 1,742,850 – 169,834 (2,278,150) 12/3/2010: The Bank of Currituck completed its repurchase 

of all preferred stock (including preferred stock received upon exercise of warrants) issued to Treasury. 


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TIB Financial Corp.* .................................................................. 37,000,000 12,119,637 40,000 1,284,722 (24,880,363) 9/30/2010: Preferred stock and warrants sold to North American Financial Holdings. 

Tifton Banking Company ............................................................ 3,800,000 – – 223,208 (3,800,000) 11/12/2010: Tifton Banking Company placed into receivership. 

UCBH Holdings, Inc .................................................................... 298,737,000 – – 7,509,920 (298,737,000) 11/6/2009: United Commercial Bank, a wholly owned subsidiary of UCBH Holdings, Inc., was placed into receivership. UCBH Holdings is currently in bankruptcy proceedings. 

Total .................................................................................. $3,214,798,000 $182,041,706 440,000 77,085,901 $(3,012,116,794) 

482 Treasury Transactions Report, supra note 24, at 14. The asterisk (‘‘*’’) denotes recognized losses on Treasury’s Transactions Report. 483 Capital Bank Corporation, Schedule 14A, at 5 (Nov. 19, 2010) (online at www.sec.gov/Archives/edgar/data/1071992/000095012310107474/g25191ddef14a.htm). 


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484 Calculation of the internal rate of return (IRR) also includes CPP investments in public 

institutions not repaid in full (for reasons such as acquisition by another institution), such as 

The South Financial Group and TIB Financial Corporation. The Panel’s total IRR calculation 

now includes CPP investments in public institutions recorded as a loss on the TARP Transactions Report due to bankruptcy, such as CIT Group Inc. Going forward, the Panel will continue to include losses due to bankruptcy when Treasury determines that any associated contingent value rights have expired without value. When excluding CIT Group from the calculation, 

the resulting IRR is 10.4 percent. Treasury Transactions Report, supra note 24. 

f. Rate of Return 

As of January 3, 2011, the average internal rate of return for all 

public financial institutions that participated in the CPP and fully 

repaid the U.S. government (including preferred shares, dividends, 

and warrants) remained at 8.4 percent, with only one institution, 

Central Jersey Bancorp, exiting the program in December.484 The 

internal rate of return is the annualized effective compounded return rate that can be earned on invested capital. 

g. Warrant Disposition 

FIGURE 45: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS THAT HAVE FULLY 

REPAID CPP FUNDS (AS OF JANUARY 3, 2011) 

Institution Investment 

Date 

Warrant 

Repurchase 

Date 

Warrant 

Repurchase/ 

Sale Amount 

Panel’s Best 

Valuation 

Estimate at 

Disposition 

Date 

Price/ 

Estimate 

Ratio 

IRR 

(Percent) 

Old National Bancorp ..................... 12/12/2008 5/8/2009 $1,200,000 $2,150,000 0 .558 9 .3 

Iberiabank Corporation ................... 12/5/2008 5/20/2009 1,200,000 2,010,000 0 .597 9 .4 

Firstmerit Corporation ..................... 1/9/2009 5/27/2009 5,025,000 4,260,000 1 .180 20 .3 

Sun Bancorp, Inc. ........................... 1/9/2009 5/27/2009 2,100,000 5,580,000 0 .376 15 .3 

Independent Bank Corp. ................. 1/9/2009 5/27/2009 2,200,000 3,870,000 0 .568 15 .6 

Alliance Financial Corporation ........ 12/19/2008 6/17/2009 900,000 1,580,000 0 .570 13 .8 

First Niagara Financial Group ........ 11/21/2008 6/24/2009 2,700,000 3,050,000 0 .885 8 .0 

Berkshire Hills Bancorp, Inc. .......... 12/19/2008 6/24/2009 1,040,000 1,620,000 0 .642 11 .3 

Somerset Hills Bancorp .................. 1/16/2009 6/24/2009 275,000 580,000 0 .474 16 .6 

SCBT Financial Corporation ............ 1/16/2009 6/24/2009 1,400,000 2,290,000 0 .611 11 .7 

HF Financial Corp. .......................... 11/21/2008 6/30/2009 650,000 1,240,000 0 .524 10 .1 

State Street ..................................... 10/28/2008 7/8/2009 60,000,000 54,200,000 1 .107 9 .9 

U.S. Bancorp ................................... 11/14/2008 7/15/2009 139,000,000 135,100,000 1 .029 8 .7 

The Goldman Sachs Group, Inc. ..... 10/28/2008 7/22/2009 1,100,000,000 1,128,400,000 0 .975 22 .8 

BB&T Corp. ..................................... 11/14/2008 7/22/2009 67,010,402 68,200,000 0 .983 8 .7 

American Express Company ............ 1/9/2009 7/29/2009 340,000,000 391,200,000 0 .869 29 .5 

Bank of New York Mellon Corp ....... 10/28/2008 8/5/2009 136,000,000 155,700,000 0 .873 12 .3 

Morgan Stanley ............................... 10/28/2008 8/12/2009 950,000,000 1,039,800,000 0 .914 20 .2 

Northern Trust Corporation ............. 11/14/2008 8/26/2009 87,000,000 89,800,000 0 .969 14 .5 

Old Line Bancshares Inc. ............... 12/5/2008 9/2/2009 225,000 500,000 0 .450 10 .4 

Bancorp Rhode Island, Inc. ............ 12/19/2008 9/30/2009 1,400,000 1,400,000 1 .000 12 .6 

Centerstate Banks of Florida Inc. .. 11/21/2008 10/28/2009 212,000 220,000 0 .964 5 .9 

Manhattan Bancorp ........................ 12/5/2008 10/14/2009 63,364 140,000 0 .453 9 .8 

CVB Financial Corp. ........................ 12/5/2008 10/28/2009 1,307,000 3,522,198 0 .371 6 .4 

Bank of the Ozarks ......................... 12/12/2008 11/24/2009 2,650,000 3,500,000 0 .757 9 .0 

Capital One Financial ..................... 11/14/2008 12/3/2009 148,731,030 232,000,000 0 .641 12 .0 

JPMorgan Chase & Co. ................... 10/28/2008 12/10/2009 950,318,243 1,006,587,697 0 .944 10 .9 

CIT Group Inc. ................................. 12/31/2008 – – 562,541 – (97 .2) 

TCF Financial Corp. ........................ 1/16/2009 12/16/2009 9,599,964 11,825,830 0 .812 11 .0 

LSB Corporation .............................. 12/12/2008 12/16/2009 560,000 535,202 1 .046 9 .0 

Wainwright Bank & Trust Company 12/19/2008 12/16/2009 568,700 1,071,494 0 .531 7 .8 

Wesbanco Bank, Inc. ...................... 12/5/2008 12/23/2009 950,000 2,387,617 0 .398 6 .7 

Union First Market Bankshares Corporation (Union Bankshares Corporation) ..................................... 12/19/2008 12/23/2009 450,000 1,130,418 0 .398 5 .8 

Trustmark Corporation .................... 11/21/2008 12/30/2009 10,000,000 11,573,699 0 .864 9 .4 

Flushing Financial Corporation ....... 12/19/2008 12/30/2009 900,000 2,861,919 0 .314 6 .5 

OceanFirst Financial Corporation ... 1/16/2009 2/3/2010 430,797 279,359 1 .542 6 .2 


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FIGURE 45: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS THAT HAVE FULLY 

REPAID CPP FUNDS (AS OF JANUARY 3, 2011)—Continued 

Institution Investment Date 

Warrant 

Repurchase Date 

Warrant 

Repurchase/ 

Sale Amount 

Panel’s Best 

Valuation 

Estimate at 

Disposition Date 

Price/ 

Estimate 

Ratio 

IRR (Percent) 

Monarch Financial Holdings, Inc. ... 12/19/2008 2/10/2010 260,000 623,434 0 .417 6 .7 

Bank of America ............................. 10/28/2008 485

1/9/2009 486

1/14/2009 487

3/3/2010 1,566,210,714 1,006,416,684 1 .533 6 .5 

Washington Federal 

Inc./Washington Federal Savings 

& Loan Association .................... 11/14/2008 3/9/2010 15,623,222 10,166,404 1 .537 18 .6 

Signature Bank ............................... 12/12/2008 3/10/2010 11,320,751 11,458,577 0 .988 32 .4 

Texas Capital Bancshares, Inc. ...... 1/16/2009 3/11/2010 6,709,061 8,316,604 0 .807 30 .1 

Umpqua Holdings Corp. .................. 11/14/2008 3/31/2010 4,500,000 5,162,400 0 .872 6 .6 

City National Corporation ............... 11/21/2008 4/7/2010 18,500,000 24,376,448 0 .759 8 .5 

First Litchfield Financial Corporation ............................................. 12/12/2008 4/7/2010 1,488,046 1,863,158 0 .799 15 .9 

PNC Financial Services Group Inc. 12/31/2008 4/29/2010 324,195,686 346,800,388 0 .935 8 .7 

Comerica Inc. .................................. 11/14/2008 5/4/2010 183,673,472 276,426,071 0 .664 10 .8 

Valley National Bancorp ................. 11/14/2008 5/18/2010 5,571,592 5,955,884 0 .935 8 .3 

Wells Fargo Bank ............................ 10/28/2008 5/20/2010 849,014,998 1,064,247,725 0 .798 7 .8 

First Financial Bancorp .................. 12/23/2008 6/2/2010 3,116,284 3,051,431 1 .021 8 .2 

Sterling Bancshares, Inc./Sterling 

Bank ........................................... 12/12/2008 6/9/2010 3,007,891 5,287,665 0 .569 10 .8 

SVB Financial Group ....................... 12/12/2008 6/16/2010 6,820,000 7,884,633 0 .865 7 .7 

Discover Financial Services ............ 3/13/2009 7/7/2010 172,000,000 166,182,652 1 .035 17 .1 

Bar Harbor Bancshares .................. 1/16/2009 7/28/2010 250,000 518,511 0 .482 6 .2 

Citizens & Northern Corporation ..... 1/16/2009 8/4/2010 400,000 468,164 0 .854 5 .9 

Columbia Banking System, Inc. ..... 11/21/2008 8/11/2010 3,301,647 3,291,329 1 .003 7 .3 

Hartford Financial Services Group, 

Inc. .............................................. 6/26/2009 9/21/2010 713,687,430 472,221,996 1 .511 30 .3 

Lincoln National Corporation .......... 7/10/2009 9/16/2010 216,620,887 181,431,183 1 .194 27 .1 

Fulton Financial Corporation .......... 12/23/2008 9/8/2010 10,800,000 15,616,013 0 .692 6 .7 

The Bancorp, Inc./The Bancorp 

Bank ........................................... 12/12/2008 9/8/2010 4,753,985 9,947,683 0 .478 12 .8 

South Financial Group, 

Inc./Carolina First Bank ............. 12/5/2008 9/30/2010 400,000 1,164,486 0 .343 (34 .2) 

TIB Financial Corp/TIB Bank .......... 12/5/2008 9/30/2010 40,000 235,757 0 .170 (38 .0) 

Central Jersey Bancorp ................... 12/23/2008 12/1/2010 319,659 1,554,457 0 .206 6 .3 

Total ................................................ ........................ .................... $8,148,651,825 $8,001,397,712 1 .018 8 .4 

485 Investment date for Bank of America in the CPP. 486 Investment date for Merrill Lynch in the CPP. 487 Investment date for Bank of America in the TIP. 

FIGURE 46: VALUATION OF CURRENT HOLDINGS OF WARRANTS (AS OF JANUARY 3, 2011) 

Financial Institutions with Warrants Outstanding 

Warrant Valuation (millions of dollars) 

Low Estimate High Estimate Best Estimate 

Citigroup, Inc.488 .................................................................................................... $53.80 $1,070.04 $168.61 

SunTrust Banks, Inc. .............................................................................................. 15.38 186.09 78.14 

Regions Financial Corporation ................................................................................ 11.40 199.48 106.32 

Fifth Third Bancorp ................................................................................................. 137.43 428.31 228.42 

KeyCorp ................................................................................................................... 33.05 183.96 93.42 

AIG ........................................................................................................................... 1,064.98 2,516.60 1,652.69 

All Other Banks ....................................................................................................... 684.87 1,786.36 1,203.84 

Total ........................................................................................................................ $2,000.91 $6,370.84 $3,531.44 

488 Includes warrants issued under the CPP, the AGP, and the TIP. 


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489 Congressional Oversight Panel, November Oversight Report: Guarantees and Contingent 

Payments in TARP and Related Programs, at 36 (Nov. 6, 2009) (online at cop.senate.gov/ 

documents/cop-110609-report.pdf). 

2. Federal Financial Stability Efforts 

a. Federal Reserve and FDIC Programs 

In addition to the direct expenditures Treasury has undertaken 

through the TARP, the federal government has engaged in a much 

broader program directed at stabilizing the U.S. financial system. 

Many of these initiatives explicitly augment funds allocated by 

Treasury under specific TARP initiatives, such as FDIC and Federal Reserve asset guarantees for Citigroup, or operate in tandem 

with Treasury programs. Other programs, like the Federal Reserve’s extension of credit through its Section 13(3) facilities and 

special purpose vehicles (SPVs) and the FDIC’s Temporary Liquidity Guarantee Program (TLGP), operate independently of the 

TARP. 

b. Total Financial Stability Resources 

Beginning in its April 2009 report, the Panel broadly classified 

the resources that the federal government has devoted to stabilizing the economy through myriad new programs and initiatives 

such as outlays, loans, or guarantees. With the reductions in funding for certain TARP programs, the Panel calculates the total value 

of these resources to be approximately $2.5 trillion. However, this 

would translate into the ultimate ‘‘cost’’ of the stabilization effort 

only if: (1) assets do not appreciate; (2) no dividends are received, 

no warrants are exercised, and no TARP funds are repaid; (3) all 

loans default and are written off; and (4) all guarantees are exercised and subsequently written off. 

With respect to the FDIC and Federal Reserve programs, the 

risk of loss varies significantly across the programs considered 

here, as do the mechanisms providing protection for the taxpayer 

against such risk. As discussed in the Panel’s November 2009 report, the FDIC assesses a premium of up to 100 basis points, or 

1 percentage point, on TLGP debt guarantees.489 In contrast, the 

Federal Reserve’s liquidity programs are generally available only to 

borrowers with good credit, and the loans are over-collateralized 

and with recourse to other assets of the borrower. If the assets securing a Federal Reserve loan realize a decline in value greater 

than the ‘‘haircut,’’ the Federal Reserve is able to demand more collateral from the borrower. Similarly, should a borrower default on 

a recourse loan, the Federal Reserve can turn to the borrower’s 

other assets to make the Federal Reserve whole. In this way, the 

risk to the taxpayer on recourse loans only materializes if the borrower enters bankruptcy. 

c. Mortgage Purchase Programs 

On September 7, 2008, Treasury announced the GSE Mortgage 

Backed Securities Purchase (MBS) Program. The Housing and Economic Recovery Act of 2008 provided Treasury with the authority 

to purchase MBS guaranteed by government-sponsored enterprises 

(GSEs) through December 31, 2009. Treasury purchased approximately $225 billion in GSE MBS by the time its authority exVerDate Mar 15 2010 01:04 Jan 28, 2011 Jkt 063381 PO 00000 Frm 00134 Fmt 6602 Sfmt 6602 E:\HR\OC\A381.XXX A381

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490 U.S. Department of the Treasury, FY2011 Budget in Brief, at 138 (Feb. 2010) (online at 

www.treasury.gov/about/budget-performance/budget-in-brief/Documents/ 

FY%202011%20BIB%20(2).pdf). 491 U.S. Department of the Treasury, MBS Purchase Program: Portfolio by Month (online at 

www.financialstability.gov/docs/December%202010%20Portfolio%20by%20month.pdf) (accessed 

Jan. 11, 2011). Treasury has received $75.9 billion in principal repayments and $15.6 billion 

in interest payments from these securities. See U.S. Department of the Treasury, MBS Purchase 

Program Principal and Interest Received (online at www.financialstability.gov/docs/ 

December%202010%20MBS%20Principal%20and%20Interest%20Monthly%20Breakout.pdf) 

(accessed Jan. 11, 2011). 492 Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report 

on Credit and Liquidity Programs and the Balance Sheet, at 5 (Dec. 2010) (online at 

federalreserve.gov/monetarypolicy/files/monthlyclbsreport201012.pdf). 493 Id. at 5. 494 Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances 

(H.4.1) (Jan. 6, 2011) (online at www.federalreserve.gov/releases/h41/20110106/) (hereinafter 

‘‘Factors Affecting Reserve Balances (H.4.1)’’). 495 Board of Governors of the Federal Reserve System, Press Release—FOMC Statement (Nov. 

3, 2010) (online at www.federalreserve.gov/newsevents/press/monetary/20101103a.htm); Federal 

Reserve Bank of New York, Statement Regarding Purchases of Treasury Securities (Nov. 3, 2010) 

(online at www.federalreserve.gov/newsevents/press/monetary/monetary20101103a1.pdf). 496On August 10, 2010, the Federal Reserve began reinvesting principal payments on agency 

debt and agency MBS holdings in longer-term Treasury securities in order to keep the amount 

of their securities holdings in their System Open Market Account portfolio at their then-current 

level. Board of Governors of the Federal Reserve System, FOMC Statement (Aug. 10, 2010) (online at www.federalreserve.gov/newsevents/press/monetary/20100810a.htm). 497Federal Reserve Bank of New York, FAQs: Purchases of Longer-term Treasury Securities 

(Nov. 3, 2010) (online at www.newyorkfed.org/markets/lttreas_faq.html). 498Factors Affecting Reserve Balances (H.4.1), supra note 494. 

pired.490 As of December 2010, there was approximately $144.4 billion in MBS still outstanding under this program.491

In March 2009, the Federal Reserve authorized purchases of $1.25 trillion MBS guaranteed by Fannie Mae, Freddie Mac, and 

Ginnie Mae, and $200 billion of agency debt securities from Fannie 

Mae, Freddie Mac, and the Federal Home Loan Banks.492 The intended purchase amount for agency debt securities was subsequently decreased to $175 billion.493 All purchasing activity was 

completed on March 31, 2010. As of January 6, 2010, the Federal 

Reserve held $992 billion of agency MBS and $147 billion of agency 

debt.494

d. Federal Reserve Treasury Securities Purchases 495

On November 3, 2010, the Federal Open Market Committee 

(FOMC) announced that it has directed the Federal Reserve Bank 

of New York (FRBNY) to begin purchasing an additional $600 billion in longer-term Treasury securities. In addition, FRBNY will reinvest $250 billion to $300 billion in principal payments from agency debt and agency MBS in Treasury securities.496 The additional 

purchases and reinvestments will be conducted through the end of 

the second quarter of 2011, meaning the pace of purchases will be 

approximately $110 billion per month. In order to facilitate these 

purchases, FRBNY will temporarily lift its System Open Market 

Account per-issue limit, which prohibits the Federal Reserve’s holdings of an individual security from surpassing 35 percent of the 

outstanding amount.497 As of January 6, 2010, the Federal Reserve held $1.03 trillion in Treasury securities.498


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FIGURE 47: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF DECEMBER 30, 

2010) xxxiii

Program 

(billions of dollars) 

Treasury 

(TARP) 

Federal 

Reserve FDIC Total 

Total ............................................................................... $475.0 $1,311.6 $690.9 $2,477.5 

Outlays xxxiv .......................................................... 201.4 1,166.0 188.9 1,556.3 

Loans ..................................................................... 23.6 145.6 0 169.6 

Guarantees xxxv .................................................... 4.3 0 502 506.3 

Repaid and Unavailable TARP Funds ................... 245.8 0 0 245.8 

AIG xxxvi ........................................................................ 69.8 81.7 0 151.4 

0utlays ................................................................... xxxvii 69.8 xxxviii 26.4 0 96.2 

Loans ..................................................................... 0 xxxix 55.2 0 55.2 

Guarantees ............................................................ 0 0 0 0 

Citigroup ........................................................................ 0 0 0 0 

0utlays ................................................................... xi 0 0 0 0 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Capital Purchase Program (Other) .............................. 34.4 0 0 34.4 

Outlays .................................................................. xii 34.4 0 0 34.4 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Capital Assistance Program ......................................... N/A 0 0 xlii N/A 

TALF ................................................................................ 4.3 38.7 0 43.0 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 xliv 38.7 0 38.7 

Guarantees ............................................................ xliii 4.3 0 0 4.3 

PPIP (Loans) xlv ............................................................ 0 0 0 0 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

PPIP (Securities) ........................................................... xlvi 22.4 0 0 22.4 

Outlays .................................................................. 7.4 0 0 7.4 

Loans ..................................................................... 15.1 0 0 15.1 

Guarantees ............................................................ 0 0 0 0 

Making Home Affordable Program/Foreclosure Mitigation ........................................................................ 45.6 0 0 45.6 

Outlays .................................................................. xlvii 45.6 0 0 45.6 

Outlays .................................................................. 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Automotive Industry Financing Program ..................... xlviii 51.4 0 0 51.4 

Outlays .................................................................. 43.3 0 0 43.3 

Loans ..................................................................... 8.1 0 0 8.1 

Guarantees ............................................................ 0 0 0 0 

Automotive Supplier Support Program ........................ 0.4 0 0 0.4 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... xliv 0.4 0 0 0.4 

Guarantees ............................................................ 0 0 0 0 

SBA 7(a) Securities Purchase ...................................... l 0.37 0 0 0.37 

Outlays .................................................................. 0.37 0 0 0.37 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Community Development Capital Initiative ................. li 0.57 0 0 0.57 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0.57 0 0 0.57 

Guarantees ............................................................ 0 0 0 0 

Temporary Liquidity Guarantee Program .................... 0 0 502.0 502.0 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 lii 502.0 502.0 

Deposit Insurance Fund ............................................... 0 0 188.9 188.9 

Outlays .................................................................. 0 0 liii 88.9 188.9 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Other Federal Reserve Credit Expansion .................... 0 1,191.3 0 1,191.3 

Outlays .................................................................. 0 liv 1,139.6 0 1,139.6 

Loans ..................................................................... 0 lv 51.7 0 51.7 


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FIGURE 47: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF DECEMBER 30, 

2010) xxxiii—Continued 

Program 

(billions of dollars) 

Treasury 

(TARP) 

Federal 

Reserve FDIC Total 

Guarantees ............................................................ 0 0 0 0 

xxxiii Unless otherwise noted, all data in this figure are as of December 30, 2010. xxxiv The term ‘‘outlays’’ is used here to describe the use of Treasury funds under the TARP, which are broadly classifiable as purchases of 

debt or equity securities (e.g., debentures, preferred stock, exercised warrants, etc.). These values were calculated using (1) Treasury’s actual 

reported expenditures, and (2) Treasury’s anticipated funding levels as estimated by a variety of sources, including Treasury statements and 

GAO estimates. Anticipated funding levels are set at Treasury’s discretion, have changed from initial announcements, and are subject to further change. Outlays used here represent investment and asset purchases—as well as commitments to make investments and asset 

purchases—and are not the same as budget outlays, which under section 123 of EESA are recorded on a ‘‘credit reform’’ basis. xxxv Although many of the guarantees may never be exercised or will be exercised only partially, the guarantee figures included here represent the federal government’s greatest possible financial exposure. xxxvi U.S. Department of the Treasury, Treasury Update on AIG Investment Valuation (Nov. 1, 2010) (online at 

financialstability.gov/latest/pr_11012010.html). AIG values exclude accrued dividends on preferred interests in the AIA and ALICO SPVs and accrued interest payable to FRBNY on the Maiden Lane LLCs. xxxviiThis number includes investments under the AIGIP/SSFI Program: a $40 billion investment made on November 25, 2008, and a $30 

billion investment made on April 17, 2009 (less a reduction of $165 million representing bonuses paid to AIG Financial Products employees). 

As of November 1, 2010, AIG had utilized $47.5 billion of the available $69.8 billion under the AIGIP/SSFI. U.S. Department of the Treasury, 

Treasury Update on AIG Investment Valuation (Nov. 1, 2010) (online at www.financialstability.gov/latest/pr_11012010.html); U.S. Department of 

the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 21 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xxxviii As part of the restructuring of the U.S. government’s investment in AIG announced on March 2, 2009, the amount available to AIG

through the Revolving Credit Facility was reduced by $25 billion in exchange for preferred equity interests in two special purpose vehicles, AIA 

Aurora LLC and ALICO Holdings LLC. Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report on Credit and 

Liquidity Programs and the Balance Sheet, at 18 (Dec. 2010) (online at 

www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201012.pdf). These SPVs were established to hold the common stock of two AIG subsidiaries: American International Assurance Company Ltd. (AIA) and American Life Insurance Company (ALICO). As of January 6, 2011, the 

book value of the Federal Reserve Bank of New York’s holdings in AIA Aurora LLC and ALICO Holdings LLC was $26.4 billion in preferred equity ($16.9 billion in AIA and $9.5 billion in ALICO). Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1) (Jan. 6, 

2011) (online at www.federalreserve.gov/releases/h41/20110106/). xxxix This number represents the full $28.9 billion made available to AIG through its Revolving Credit Facility (RCF) with FRBNY ($20.0 billion had been drawn down as of January 5, 2011) and the outstanding principal of the loans extended to the Maiden Lane II and III SPVs to 

buy AIG assets (as of January 5, 2011, $12.8 billion and $13.5 billion, respectively). Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1) (Jan. 6, 2011) (online at www.federalreserve.gov/releases/h41/20110106/); Board of Governors of the Federal Reserve 

System, Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 16 (Dec. 

2010) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201012.pdf). The amounts outstanding under the Maiden Lane II 

and III facilities do not reflect the accrued interest payable to FRBNY. Income from the purchased assets is used to pay down the loans to the SPVs, reducing the taxpayers’ exposure to losses over time. Board of Governors of the Federal Reserve System, Federal Reserve System 

Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 15 (Nov. 2010) (online at 

www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201011.pdf). 

The maximum amount available through the RCF decreased from $34.4 billion to $28.9 billion between March and November 2010, pri- marily as a result of the sale of several subsidiaries. The reduced ceiling also reflects a $3.95 billion repayment to the RCF from proceeds 

earned from a debt offering by the International Lease Finance Corporation (ILFC), an AIG subsidiary. The balance on the RCF increased $0.7 

billion between October 27 and November 24, 2010, primarily due to recapitalized interest and fees as principal repayments. Board of Gov- ernors of the Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 16, 

19 (Dec. 2010) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201012.pdf). xlThe final sale of Treasury’s Citigroup common stock resulted in full repayment of Treasury’s investment of $25 billion. See endnote ii, 

supra, for further details of the sales of Citigroup common stock. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions 

Report for the Period Ending December 30, 2010, at 1, 13 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xliThis figure represents the $204.9 billion Treasury disbursed under the CPP, minus the $25 billion investment in Citigroup identified 

above, $139.5 billion in repayments (excluding the amount repaid for the Citigroup investment) that are in ‘‘repaid and unavailable’’ TARP 

funds, and losses under the program. This figure does not account for future repayments of CPP investments and dividend payments from 

CPP investments. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 

2010, at 13 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xlii On November 9, 2009, Treasury announced the closing of the CAP and that only one institution, GMAC/Ally Financial, was in need of 

further capital from Treasury. GMAC/Ally Financial, however, received further funding through the AIFP. Therefore, the Panel considers the CAP 

unused. U.S. Department of the Treasury, Treasury Announcement Regarding the Capital Assistance Program (Nov. 9, 2009) (online at 

www.financialstability.gov/latest/tg_11092009.html). xliiiThis figure represents the $4.3 billion adjusted allocation to the TALF SPV. However, as of January 6, 2011, TALF LLC had drawn only 

$106 million of the available $4.3 billion. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Jan. 

6, 2011) (online at www.federalreserve.gov/releases/h41/20110106/); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 21 (Dec. 30, 2010) (online at financialstability.gov/latest/tg_11092009.html). On 

June 30, 2010, the Federal Reserve ceased issuing loans collateralized by newly issued CMBS. As of this date, investors had requested a total 

of $73.3 billion in TALF loans ($13.2 billion in CMBS and $60.1 billion in non-CMBS) and $71 billion in TALF loans had been settled ($12 

billion in CMBS and $59 billion in non-CMBS). Earlier, it ended its issues of loans collateralized by other TALF-eligible newly issued and legacy ABS (non-CMBS) on March 31, 2010. Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: Terms and Conditions 

(online at www.newyorkfed.org/markets/talf_terms.html) (accessed Jan. 6, 2011); Federal Reserve Bank of New York, Term Asset-Backed Securi- ties Loan Facility: CMBS (online at www.newyorkfed.org/markets/cmbs_operations.html) (accessed Jan. 6, 2011); Federal Reserve Bank of New 

York, Term Asset-Backed Securities Loan Facility: CMBS (online at www.newyorkfed.org/markets/CMBS_recent_operations.html) (accessed Jan. 6, 

2011); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: non-CMBS (online at 

www.newyorkfed.org/markets/talf_operations.html) (accessed Jan. 6, 2011); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: non-CMBS (online at www.newyorkfed.org/markets/TALF_recent_operations.html) (accessed Jan. 6, 2011). 


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xliv This number is derived from the unofficial 1:10 ratio of the value of Treasury loan guarantees to the value of Federal Reserve loans 

under the TALF. U.S. Department of the Treasury, Fact Sheet: Financial Stability Plan, at 4 (Feb. 10, 2009) (online at 

financialstability.gov/docs/fact-sheet.pdf) (describing the initial $20 billion Treasury contribution tied to $200 billion in Federal Reserve loans 

and announcing potential expansion to a $100 billion Treasury contribution tied to $1 trillion in Federal Reserve loans). Since only $43 billion 

in TALF loans remained outstanding when the program closed, Treasury is currently responsible for reimbursing the Federal Reserve Board only 

up to $4.3 billion in losses from these loans. Thus, the Federal Reserve’s maximum potential exposure under the TALF is $38.7 billion. See 

Board of Governors of the Federal Reserve System, Federal Reserve Announces Agreement with Treasury Regarding Reduction of Credit Protection Provided for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 2010) (online at 

www.federalreserve.gov/newsevents/press/monetary/20100720a.htm); Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Jan. 6, 2011) (online at www.federalreserve.gov/releases/h41/20110106/). xlv No TARP resources were expended under the PPIP Legacy Loans Program, a TARP program that was announced in March 2009 but never 

launched. Since no TARP funds were allocated for the program by the time the TARP expired in October 2010, this or a similar program cannot be implemented unless another source of funding is available. xlviThis figure represents Treasury’s final adjusted investment amount in the Legacy Securities Public-Private Investment Program (PPIP). 

As of December 30, 2010, Treasury reported commitments of $15.1 billion in loans and $7.4 billion in membership interest associated with 

the PPIP. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, 

at 23 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20 

Report%20as%20of%2012-30-10.pdf). On January 4, 2010, Treasury and one of the nine fund managers, UST/TCW Senior Mortgage Securities 

Fund, L.P. (TCW), entered into a ‘‘Winding Up and Liquidation Agreement.’’ U.S. Department of the Treasury, Winding Up and Liquidation 

Agreement Between the United States Department of the Treasury and UST/TCW Senior Mortgage Securities Fund, L.P. (Jan. 4, 2010) (online at 

financialstability.gov/docs/TCW%20Winding%20Up%20Agmt%20(Execution%20Copy)%20Redacted.pdf). Treasury’s final investment amount in 

TCW totaled $356 million. Following the liquidation of the fund, Treasury’s initial $3.3 billion obligation to TCW was reallocated among the 

eight remaining funds on March 22, 2010. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the 

Period Ending December 30, 2010, at 23 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of %2012-30-10.pdf). 

On October 20, 2010, Treasury released its fourth quarterly report on PPIP. The report indicates that as of September 30, 2010, all eight 

investment funds have realized an internal rate of return since inception (net of any management fees or expenses owed to Treasury) above 

19 percent. The highest performing fund, thus far, is AG GECC PPIF Master Fund, L.P., which has a net internal rate of return of 52 percent. 

U.S. Department of the Treasury, Legacy Securities Public-Private Investment Program, at 7 (Oct. 20, 2010) (online at 

financialstability.gov/docs/External%20Report%20-%2009-10%20vFinal.pdf). xlviiThe total amount of TARP funds committed to HAMP is $29.9 billion. U.S. Department of the Treasury, Troubled Asset Relief Program 

Transactions Report for the Period Ending December 30, 2010, at 45 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf); U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—November 2010, at 4 (Dec. 10, 2010) (online at 

financialstability.gov/docs/November%20105(a)%20Report.pdf). However, as of December 31, 2010, only $840.1 million in non-GSE payments 

have been disbursed under HAMP. Data provided by Treasury (Jan. 4, 2011). xlviii A substantial portion of the total $81.3 billion in debt instruments extended under the AIFP has since been converted to common equity and preferred shares in restructured companies. $8.1 billion has been retained as first-lien debt (with $1 billion committed to Old GM 

and $7.1 billion to Chrysler). $51.4 billion represents Treasury’s current obligation under the AIFP after repayments and losses. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 18 (Dec. 30, 2010) 

(online at www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). xlix This figure represents Treasury’s total adjusted investment amount in the ASSP. U.S. Department of the Treasury, Troubled Asset Relief 

Program Transactions Report for the Period Ending December 30, at 19 (Dec. 30, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/12-30-10 %20Transactions%20Report %20as%20of%2012-30-10.pdf). l U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 43 (Oct. 2010) (online at 

www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf). li U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 17 (Dec. 

30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). liiThis figure represents the current maximum aggregate debt guarantees that could be made under the program, which is a function of the number and size of individual financial institutions participating. $286.8 billion of debt subject to the guarantee is currently outstanding, 

which represents approximately 57.1 percent of the current cap. Federal Deposit Insurance Corporation, Monthly Reports Related to the Temporary Liquidity Guarantee Program: Debt Issuance Under Guarantee Program (Dec. 21, 2010) (online at 

www.fdic.gov/regulations/resources/tlgp/total_issuance11-10.html). The FDIC has collected $10.4 billion in fees and surcharges from this program since its inception in the fourth quarter of 2008. Federal Deposit Insurance Corporation, Monthly Reports Related to the Temporary Liquidity Guarantee Program: Fees Under Temporary Liquidity Guarantee Debt Program (Dec. 21, 2010) (online at 

www.fdic.gov/regulations/resources/tlgp/fees.html). liiiThis figure represents the FDIC’s provision for losses to its deposit insurance fund attributable to bank failures in the third and fourth 

quarters of 2008; the first, second, third, and fourth quarters of 2009; and the first, second, and third quarters of 2010. Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) Report to the Board: DIF Income Statement—Third Quarter 2010 (Nov. 12, 2010) (online 

at www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_10/income.html). For earlier reports, see Federal Deposit Insurance Corporation, 

Chief Financial Officer’s (CFO) Report to the Board (Sept. 23, 2010) (online at www.fdic.gov/about/strategic/corporate/index.html). This figure 

includes the FDIC’s estimates of its future losses under loss-sharing agreements that it has entered into with banks acquiring assets of insolvent banks during these eight quarters. Under a loss-sharing agreement, as a condition of an acquiring bank’s agreement to purchase the 

assets of an insolvent bank, the FDIC typically agrees to cover 80 percent of an acquiring bank’s future losses on an initial portion of these 

assets and 95 percent of losses on another portion of assets. See, e.g., Federal Deposit Insurance Corporation, Purchase and Assumption 

Agreement—Whole Bank, All Deposits—Among FDIC, Receiver of Guaranty Bank, Austin, Texas, Federal Deposit Insurance Corporation and 

Compass Bank, at 65–66 (Aug. 21, 2009) (online at www.fdic.gov/bank/individual/failed/guaranty-tx_p_and_a_w_addendum.pdf). liv Outlays are comprised of the Federal Reserve Mortgage Related Facilities. The Federal Reserve balance sheet accounts for these facilities 

under federal agency debt securities and mortgage-backed securities held by the Federal Reserve. Board of Governors of the Federal Reserve 

System, Factors Affecting Reserve Balances (H.4.1) (Jan. 6, 2011) (online at www.federalreserve.gov/releases/h41/20110106/)(accessed Jan. 6, 

2011). Although the Federal Reserve does not employ the outlays, loans, and guarantees classification, its accounting clearly separates its 

mortgage-related purchasing programs from its liquidity programs. See, e.g., Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1), at 2 (Jan. 6, 2011) (online at www.federalreserve.gov/releases/h41/20110106/) (accessed Jan. 6, 2011). lv Federal Reserve Liquidity Facilities classified in this table as loans include primary credit, secondary credit, central bank liquidity swaps, 

Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, loans outstanding to Commercial Paper Funding Facility LLC, 

seasonal credit, term auction credit, the Term Asset-Backed Securities Loan Facility, and loans outstanding to Bear Stearns (Maiden Lane LLC). Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Jan. 6, 2011) (online at 

www.federalreserve.gov/releases/h41/20110106/)(accessed Jan. 6, 2011). For further information, see the data that the Federal Reserve recently 

disclosed on these programs pursuant to its obligations under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Board of Governors of the Federal Reserve System, Credit and Liquidity Programs and the Balance Sheet: Overview (May 11, 2010) (online at 

www.federalreserve.gov/monetarypolicy/bst.htm); Board of Governors of the Federal Reserve System, Credit and Liquidity Programs and the Balance Sheet: Reports and Disclosures (Aug. 24, 2010) (online at www.federalreserve.gov/monetarypolicy/bst_reports.htm); Board of Governors of 

the Federal Reserve System, Usage of Federal Reserve Credit and Liquidity Facilities (Dec. 3, 2010) (online at 

www.federalreserve.gov/newsevents/reform_transaction.htm). 


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499See Congressional Oversight Panel, COP Hearing on the TARP and Executive Compensation Restrictions (Oct. 21, 2010) (online at cop.senate.gov/hearings/library/hearing-102110-compensation.cfm). 

SECTION FOUR: OVERSIGHT ACTIVITIES 

The Congressional Oversight Panel was established as part of 

the Emergency Economic Stabilization Act (EESA) and formed on 

November 26, 2008. Since then, the Panel has produced 26 oversight reports as well as a special report on regulatory reform, 

issued on January 29, 2009, and a special report on farm credit, 

issued on July 21, 2009. Since the release of the Panel’s December 

oversight report, the following developments pertaining to the Panel’s oversight of the TARP took place: 

• The Panel held a hearing in Washington on December 16, 2010 

with Secretary Geithner, his fifth appearance before the Panel. 

The Secretary had the opportunity to discuss the economic impact and ultimate cost of the TARP, the challenges that remain 

in supporting the financial system and the housing market 

now that the TARP’s authority has expired, and other topics 

related to the Panel’s recently published oversight reports. 

Upcoming Reports and Hearings 

The Panel will release its next oversight report in February. The 

report will discuss executive compensation restrictions for companies that received TARP assistance, expanding upon the Panel’s 

hearing on the topic on October 21, 2010.499


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134 

SECTION FIVE: ABOUT THE CONGRESSIONAL 

OVERSIGHT PANEL 

In response to the escalating financial crisis, on October 3, 2008, 

Congress provided Treasury with the authority to spend $700 billion to stabilize the U.S. economy, preserve home ownership, and 

promote economic growth. Congress created the Office of Financial 

Stability (OFS) within Treasury to implement the TARP. At the 

same time, Congress created the Congressional Oversight Panel to 

‘‘review the current state of financial markets and the regulatory 

system.’’ The Panel is empowered to hold hearings, review official 

data, and write reports on actions taken by Treasury and financial 

institutions and their effect on the economy. Through regular reports, the Panel must oversee Treasury’s actions, assess the impact 

of spending to stabilize the economy, evaluate market transparency, ensure effective foreclosure mitigation efforts, and guarantee that Treasury’s actions are in the best interests of the American people. In addition, Congress instructed the Panel to produce 

a special report on regulatory reform that analyzes ‘‘the current 

state of the regulatory system and its effectiveness at overseeing 

the participants in the financial system and protecting consumers.’’ 

The Panel issued this report in January 2009. Congress subsequently expanded the Panel’s mandate by directing it to produce a 

special report on the availability of credit in the agricultural sector. 

The report was issued on July 21, 2009. 

On November 14, 2008, Senate Majority Leader Harry Reid and 

the Speaker of the House Nancy Pelosi appointed Richard H. 

Neiman, Superintendent of Banks for the State of New York, 

Damon Silvers, Director of Policy and Special Counsel of the American Federation of Labor and Congress of Industrial Organizations 

(AFL–CIO), and Elizabeth Warren, Leo Gottlieb Professor of Law 

at Harvard Law School, to the Panel. With the appointment on November 19, 2008, of Congressman Jeb Hensarling to the Panel by 

House Minority Leader John Boehner, the Panel had a quorum and 

met for the first time on November 26, 2008, electing Professor 

Warren as its chair. On December 16, 2008, Senate Minority Leader Mitch McConnell named Senator John E. Sununu to the Panel. 

Effective August 10, 2009, Senator Sununu resigned from the 

Panel, and on August 20, 2009, Senator McConnell announced the 

appointment of Paul Atkins, former Commissioner of the U.S. Securities and Exchange Commission, to fill the vacant seat. Effective 

December 9, 2009, Congressman Jeb Hensarling resigned from the 

Panel, and House Minority Leader John Boehner announced the 

appointment of J. Mark McWatters to fill the vacant seat. Senate 

Minority Leader Mitch McConnell appointed Kenneth Troske, 

Sturgill Professor of Economics at the University of Kentucky, to 

fill the vacancy created by the resignation of Paul Atkins on May 

21, 2010. Effective September 17, 2010, Elizabeth Warren resigned 

from the Panel, and on September 30, 2010, Senate Majority Leader Harry Reid announced the appointment of Senator Ted Kaufman 

to fill the vacant seat. On October 4, 2010, the Panel elected Senator Kaufman as its chair. 


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