To describe the nature and purpose of the federal assistance provided to the auto industry, we reviewed Department of the Treasury documents related to AIFP—including white papers on the Supplier Support Program and the Warranty Commitment Program, terms and conditions of the loans provided to Chrysler and GM, and disbursement reports on the amount of funding allocated and disbursed under the AIFP. We also interviewed Treasury officials to obtain further information and clarification on these programs. To identify how the federal assistance to the auto industry addresses our three principles for government assistance, we obtained and reviewed program information and loan documentation from Treasury to identify the goals and objectives of the assistance and the problems the assistance was intended to address. We reviewed the terms and conditions of the loan agreements to determine mechanisms in place to protect taxpayers from excessive or unnecessary risks and compared these mechanisms to the principles we have previously identified for providing financial assistance to large firms. We also obtained and reviewed financial information of the automakers to ascertain the automakers’ financial position. We reviewed the reports that GM and Chrysler periodically submitted to Treasury, as required by the loan terms, and interviewed Treasury officials about their reviews of these reports. We conducted interviews with Treasury about the loan program and agreements to identify the procedures established to oversee, monitor, and enforce the terms and conditions of the loan agreements. We also conducted interviews with officials from the Departments of Energy and Transportation to obtain information on their coordination with Treasury in providing and overseeing assistance to automakers; representatives from Chrysler, GM, Chrysler Financial Services Americas LLC (Chrysler Financial) and GMAC LLC (GMAC) to obtain information on how they determined the level of funding needed and their plans for using the funding; and representatives from Ford Motor Company and Ford Motor Credit Company to determine why they have not sought federal assistance. To identify important factors for Chrysler and GM to address to achieve long-term viability and the challenges they face to become viable, we contracted with the National Academy of Sciences (NAS) to identify a diverse group of individuals with expertise about the past and current financial condition and operations of the domestic automakers, the restructuring of distressed companies, labor relations issues, financial management and analysis of distressed or restructuring companies, factors influencing competitiveness in the auto industry, and engine and vehicle technologies that may affect the auto manufacturing industry today as well as in the near future. We selected a panel of 17 individuals from among those NAS identified based on achieving a variety of expertise and avoiding any potential conflicts of interest. We conducted individual semi-structured interviews with the panelists to identify factors influencing the current condition of the auto industry; factors affecting future viability; obstacles to achieving long-term viability; and elements that, according to members of our panel, if contained in the plans, would positively or negatively influence the potential for successful restructuring and future viability. (Appendix I lists the panel of individuals whom we interviewed.) We used a content analysis to systematically analyze transcripts of these interviews to identify principal themes that emerged from the interviews. We also reviewed comments on the content of the restructuring plans that panelists provided to us once the plans had been submitted. We compared the content of the automakers’ restructuring plans to the criteria identified by our panel and the requirements in the loan agreements. To further identify challenges to achieving long-term viability, we reviewed Treasury’s assessment of the restructuring plans Chrysler and GM submitted in February. The views expressed by the members of our panel should be interpreted in the context of the following qualifications. Although we were able to secure the participation of a balanced, highly qualified group of individuals, other individuals with expertise in relevant fields could not be included because of the need to limit the number of interviews conducted. Although many points of view were represented, the panel was not representative of all potential views. Nevertheless, the members of our panel provided rich information on the current state and future of the auto industry and insightful comments. To provide additional information and context on all issues examined in this report, we conducted interviews with other stakeholders, including a representative of the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW), representatives of the Association of International Automobile Manufacturers, and other knowledgeable individuals including financial analysts specializing in the auto sector, a lawyer knowledgeable about state franchise laws, and an economist specializing in labor issues. To ensure the accuracy and completeness of the information contained in the report, we asked representatives of Chrysler, Ford, GM, the UAW, and the Pension Benefit Guaranty Corporation (PBGC), and two members of our panel to review portions of a draft of this report. We also provided Chrysler and GM with the opportunity to review the complete draft and discuss their comments with us. They offered some technical corrections and clarifications, which we incorporated as appropriate. We conducted this performance audit from January 2009 to April 2009 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings, based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings based on our audit objectives. GM, a publicly traded company, was incorporated in 1916 and employs about 240,000 people worldwide. It has manufacturing facilities in 34 countries and sells more than a dozen brands of vehicles in about 140 countries. Chrysler is a privately held company that was established 9 years later, in 1925, and employs about 54,000 people worldwide, including at manufacturing facilities in 4 countries and vehicles assembled under contract in 4 others. Chrysler and GM reported losses in 2008 totaling $8 billion and $31 billion, respectively, and there are significant concerns about the future of both companies. For instance, in GM’s 2008 audit report, its independent registered public accountant raised “substantial doubt” about GM’s ability to continue as a going concern due to “recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations.” In addition, Chrysler stated in its restructuring plan that additional federal funds will be needed this spring to prevent the company from having to file for bankruptcy. The automakers themselves are not alone in suffering the effects of declining automotive sales and revenues. The economic reach of the auto industry in the United States is broad, with many groups affected by its downturn and the financial condition of the automakers. Some key groups include the following. Autoworkers: At the end of 2007, Chrysler, Ford, and GM employed about 240,000 hourly and salaried workers in the United States. Thousands of workers have been laid off, retired, or taken buyouts in the past months as the automakers seek to cut their costs and excess production capacity. Most hourly workers are represented by the UAW, which is in discussions with Chrysler and GM to modify existing labor agreements to achieve cost reductions. Suppliers: More than 500,000 workers are employed by companies in the United States that manufacture parts and components used by automakers—both domestic automakers and transplants. According to the Motor and Equipment Manufacturers Association, many suppliers are in severe financial distress, with a number having filed for bankruptcy in 2008. Some members of our panel said that because many of these suppliers have relatively high costs and depend on the business of the Detroit 3, some of them may not have enough revenue to survive if one of the automakers were to cease production. This, in turn, could affect the automakers’ ability to obtain parts needed to manufacture vehicles. This dynamic has the potential to affect all automakers with production facilities in the United States, regardless of home country. States and localities in auto manufacturing regions: The automotive manufacturing industry, including the Detroit 3, transplant automakers, and suppliers, is concentrated in certain states in the Midwest and South. For instance, in Michigan, 28 percent of manufacturing jobs are in the automotive sector, as of March 2008. Other states with a high proportion of jobs in this sector include Kentucky (19 percent), Indiana (14 percent), Ohio (13 percent), Alabama (10 percent), and Tennessee (9 percent). A December 2008 Brookings Institution report identified 50 metropolitan areas, clustered primarily in the Midwest and South, that rely heavily on Detroit 3-related jobs. Although any loss of output due to the difficulties of the auto industry could be felt nationwide, the geographic concentration of the industry means certain regions will be harder hit than others as residents in these regions lose their jobs and the tax base shrinks. Automaker retirees: About 600,000 individuals currently receive pension payments from Chrysler and GM. Due to the retirement benefits— including pensions and healthcare—provided to autoworkers, established and enhanced through several decades of collective bargaining, the Detroit 3 are facing a significant financial commitment. In an effort to reduce costs and become more competitive with the transplants, the Detroit 3 in 2007 reached an agreement with UAW to transfer responsibility for administering the health plans to the union. Under this agreement, voluntary employee beneficiary associations (VEBAs) were created to manage retiree health plans starting January 1, 2010, and the automakers agreed to make several cash contributions of specific amounts (totaling about $10.3 billion for Chrysler and up to $26 billion for GM) on specific dates to fund the VEBAs. Chrysler and GM are currently negotiating with the union to provide a portion of their monetary contribution as equity in the companies rather than cash. Dealerships: The Detroit 3 have about 14,000 U.S. dealerships, most of which are independently owned and operated. Many are struggling financially due to low sales and lack of credit to purchase inventory from the automakers. In addition, in comparison to transplants, the Detroit 3 automakers generally have more dealers and sell fewer vehicles per dealer. According to Automotive News, more than 900 dealers have closed during the last year, due in part to the current economic conditions. Employment at dealers—with more than 1 million jobs—has also fallen.