The decision to provide substantial amounts of funding to the auto industry—more than 12 percent of all authorized TARP funds—and to accept equity in the companies in return for some of the assistance reflects Treasury’s view of the automotive industry’s importance to the U.S. economy. According to Treasury officials, Treasury provided assistance not simply because of the industry’s importance, but because of the severity of the crisis and the desire to prevent significant disruption to the economy that would have resulted from uncontrolled liquidations of Chrysler and GM. To help stabilize the industry and avoid economic disruptions, Treasury disbursed $79.7 billion through AIFP from December 2008 through June 2009. The majority of the assistance was used to support two automakers, Chrysler and GM, during restructuring, along with their automotive finance companies, Chrysler Financial and GMAC. In July 2009, Treasury outlined guiding principles for the investments made to the auto industry, including: exiting its investments as soon as practicable in a timely and orderly manner that minimizes financial market and economic impact; protecting taxpayer investment and maximizing overall investment returns within competing constraints; improving the strength and viability of GM and Chrysler so that they can contribute to economic growth and jobs without government involvement; and managing its ownership stake in a hands-off, commercial manner, including voting its shares only on core governance issues, such as the selection of a company’s board of directors and major corporation events or transactions. GM is one of the world’s largest automotive companies and does business in more than 120 countries worldwide. As of December 31, 2012, it employed 213,000 workers worldwide and marketed vehicles through a network of independent retailers totaling 20,754 dealers. In North America, GM manufactures and markets the following brands: Buick, Cadillac, Chevrolet, and GMC. Treasury provided a $13.4 billion loan in December 2008 to the Old GM to fund working capital.the purchase of additional ownership interests in a rights offering by GMAC. In April 2009, Treasury loaned an additional $6 billion to fund Old GM as it worked to submit a viable restructuring plan (working capital loan). These funds, along with loans from the Canadian government and concessions from nearly every stakeholder, including the company’s primary labor union—the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW)—were intended to give the companies time to restructure to improve their competitiveness and long-term viability. Treasury also lent $884 million to the Old GM for As a condition of receiving this assistance, Old GM was required to submit a plan to Treasury that would, among other things, identify how it intended to achieve and sustain long-term financial viability. GM’s initial viability plan submitted in February 2009 was rejected. The plan established targets for addressing some of the company’s key challenges to achieving viability, including reducing debt, numbers of brands and models, dealership networks, and production costs and capacity. In 2009, Old GM filed a voluntary petition for reorganization under Chapter 11 of the U.S. bankruptcy code. Subsequently, in June 2009, Treasury provided Old GM with $30.1 billion under a debtor-in-possession financing agreement to assist during the restructuring. The newly organized GM was able to purchase most of the operating assets of the former company through a sale under Section 363 of the bankruptcy code. When the sale was completed on July 10, 2009, Treasury converted most of its loans into 60.8 percent of the common equity in GM and $2.1 billion in preferred stock. In addition, $6.7 billion of the TARP loans remained outstanding after the bankruptcy. In spring 2011, the bankruptcy was completed, and Old GM’s remaining assets and liabilities were transferred to liquidating trusts. As we concluded in our past work, the federal assistance allowed GM to restructure its balance sheets and obligations through the bankruptcy code and tackle key challenges to achieving viability. Ally Financial, previously known as GMAC, formerly served as GM’s captive auto finance company. The primary purpose of auto financing is to provide credit to consumers so that they can purchase automobiles. In determining how to finance their purchases, consumers have many financial institutions from which to choose, including banks, credit unions, and auto finance companies, all of which may offer loans or other credit accommodations for the purchase of new and used automobiles. In addition to consumer financing, auto dealers have also traditionally used manufacturers’ finance companies to finance their purchase of the automobile inventory that they sell (known as floor-plan financing). Prior to the financial crisis, GMAC’s subsidiaries expanded into other areas of financial services, such as auto insurance and residential mortgages, but GMAC remained a wholly owned subsidiary of the Old GM. In 2006, Cerberus Capital Management purchased 51 percent of the company. GM retained a 49 percent ownership stake. As the housing market declined in the late 2000s, the previously profitable GMAC mortgage business unit began producing significant losses. For example, the company’s Residential Capital LLC (ResCap) subsidiary—which by 2006 had grown to be the country’s sixth-largest mortgage originator and fifth-largest mortgage servicer—lost approximately $17 billion from 2007 through 2009. During the same time period, automobile sales in the U.S. dropped from 16.4 million to 10.4 million, negatively affecting the company’s core auto financing business. According to Treasury, Treasury determined that without government assistance GMAC would be forced to deny or suspend financing to creditworthy dealerships, leaving them unable to purchase automobile inventory for their lots. Without orders for automobiles from dealerships, GM would have been forced to slow or shut down its factories indefinitely to match the drop in demand. Given its significant overhead, a slow-down or stoppage of this magnitude would have caused GM to topple, according to Treasury. However, GMAC was not initially eligible for assistance under the TARP Capital Purchase Program (CPP). To become eligible for federal financial assistance, GMAC sought to convert GMAC Bank’s charter from an industrial loan company into a commercial bank in 2008 and applied to the Federal Reserve for bank holding company status. GMAC also submitted an application to participate in the Capital Purchase Program, conditional upon becoming a bank holding company. The Federal Reserve approved GMAC’s bank holding company application in December 2008. Although GMAC originally applied for participation in CPP, in late December 2008, as a part of AIFP, Treasury agreed to purchase $5 billion in senior preferred equity from GMAC and received an additional $250 million in preferred shares through warrants that Treasury exercised immediately. Treasury subsequently provided GMAC with additional assistance through TARP. In May 2009, Treasury purchased $7.5 billion of mandatory convertible preferred shares from GMAC. In December 2009, Treasury purchased additional shares—$2.5 billion of trust preferred securities and approximately $1.3 billion of mandatory convertible preferred shares. Also, in December 2009, Treasury converted $3 billion of existing mandatory convertible preferred shares into common stock, increasing its common equity stake from 35 percent to 56.3 percent. In December 2010, Treasury converted preferred stock in Ally Financial that had a liquidation preference of $5.5 billion into common stock. This stock conversion resulted in Treasury’s owning approximately 74 percent of Ally Financial. In addition, as of September 2013, Treasury continues to hold $5.9 billion of Ally Financial’s mandatory convertible preferred shares. Ally Financial pays a 9.0 percent fixed dividend annually to Treasury on these preferred shares. As will be discussed later in this report, Ally Financial has entered into an agreement with Treasury to repurchase the mandatory convertible preferred shares with possible completion of the transaction sometime later this year. As of June 2013, Ally Financial was the 20th largest U.S. bank holding company, with total assets of $150.6 billion. Its primary line of business is auto financing—both consumer financing and leasing and dealer floor- plan financing. As a bank holding company, Ally Financial is regulated and supervised by the Federal Reserve. Ally Bank, an Internet and-telephone-based, state-chartered nonmember bank that is supervised by the FDIC and the Utah Department of Financial Institutions. Ally Bank has over $92 billion in assets and $50.8 billion in total deposits, as of June 30, 2013. 12 U.S.C. § 1844(b)-(c). Since receiving federal assistance, GM has shown increasingly positive financial results. For each of the last 3 years, GM has reported profits, a positive and growing operating cash flow, and a stable liquidity position. This improved financial performance has been reflected in GM’s credit ratings, with each of the three largest credit rating agencies increasing GM’s long-term credit rating. Although Moody’s upgraded GM’s rating to investment grade on September 23, 2013, Standard and Poor’s and Fitch Ratings rate GM as below investment grade as of the same month. Furthermore, GM’s market share of vehicles sold in North America was smaller than in 2008, and it continued to carry large pension liabilities. Based on our analysis of GM’s reported financial data, the company’s financial performance has improved since 2008. We assessed GM’s financial performance by examining its reported net income, operating income, and operating cash flow. Net income (loss): Net income (net profit or loss) is the difference between total revenues and expenses and represents the company’s income after all expenses and taxes have been deducted. For 2010, 2011, and 2012, GM reported net income of $6.5 billion, $9.3 billion, and $6.1 billion, respectively (see table 1). In 2008, prior to the federal government’s assistance and Old GM’s bankruptcy, GM reported a net loss of $30.9 billion.