GMAC Bailout May Add $6.3B to Public's Tab

(AP)  The Treasury Department sank billions into auto finance giant GMAC Inc. without an exit strategy or proof the company was viable - a decision that could cost taxpayers $6.3 billion, a new watchdog report says.

The government said the $17.2 billion bailout was a necessary step to save troubled automakers General Motors and Chrysler. GMAC provides critical financing to auto dealers, who borrow to finance their fleets until the cars can be sold to consumers.

Yet GMAC faced far fewer conditions than the bailed-out automakers, the report says. When the automakers were rescued, they were forced into bankruptcy. Shareholders lost their investments, creditors took a hit and executives were forced to detail plans for making the companies viable.

GMAC was treated more like banks that received bailouts without having to explain what they were doing with the money, the report says.

The report was released Thursday by the Congressional Oversight Panel overseeing the $700 billion financial bailout that Congress passed in October 2008.

"Treasury missed many opportunities to improve accountability and protect taxpayer money," panel chair Elizabeth Warren said in a conference call with reporters. She said Treasury didn't make GMAC show how it would return the taxpayer money, or how the investment would increase credit to consumers.

"These decisions mean that Treasury is now struggling to deal with a GMAC that is not financially rehabilitated, Treasury has no exit strategy and taxpayers are not fully protected," Warren said.

The Treasury Department responded by reiterating that backing GMAC was necessary to preserve dealer financing for GM. It disputed the report's core finding, that alternative approaches might have saved taxpayer money and provided better transparency.

"Treasury viewed the course taken as the least costly and least disruptive of all the options available," Treasury spokeswoman Meg Reilly said in a statement.

The watchdog report, however, calls GMAC's three-part bailout "one of the more baffling decisions made" to stabilize the financial sector. It says there was no evidence that GMAC's failure would upend the financial system, or that it was "too big to fail."

GMAC started as the finance arm of General Motors, providing crucial funding for consumers buying cars and dealers financing wholesale purchases. In recent years, it became a key player in subprime mortgage lending and other risky finance that fueled the financial crisis.

The company began to see major losses in 2007 as the housing market turned south and subprime mortgage investments lost much of their value.

GMAC CEO Michael Carpenter referred to the company's money-losing mortgage unit as the "millstone around the company's neck."

The new report says the bailout effectively saved GMAC's mortgage arm and other unprofitable businesses. It questions whether the government should have wound down GMAC's operations that are not related to auto financing, perhaps by orchestrating the same sort of bankruptcy it arranged for GM and Chrysler.

The auto finance arm might have been merged back into GM, said Warren, who also is a bankruptcy expert and a professor at Harvard Law School. She said Treasury did not fully consider that course.

That left Treasury owning 56.3 percent of a company that continues to lose money.

Treasury spokeswoman Reilly described the government as a "reluctant shareholder" in GMAC and said it is managing its investment in the company in "a hands-off commercial manner consistent with the administration's established principles that guide Treasury's management of financial interests in private firms."

The estimate that taxpayers could lose $6.3 billion was released earlier by the White House's Office of Management and Budget, but it was not publicized before Thursday's report.

The Congressional Oversight Panel is one of three mechanisms Congress built into the $700 billion bailout bill. The fund also is subject to audits by the Government Accountability Office and investigation by a special inspector general.

Besides Warren, the panel includes New York state banking superintendent Richard Neiman, former Securities and Exchange Commissioner Paul Atkins and attorney J. Mark McWatters. Damon Silvers, a senior official with the labor federation AFL-CIO, is on the panel but recused himself from all consideration of the auto bailouts.

[rockcutr]

So make up the rules as ya go along, just like always.
G mac is no better than the Toy company from japan. All a bunch of liars and deceivers with overinflated salarys and pitiful product. Take their birthday away. Bury them with pennies on their eyes. So that at least when they meet their maker they will have 2 cents to their name. Car companies in bed with loan companies. Why is this even legal? If they are allowed to live, we the people shall pay for their indescression on next years models. The ones in high heels that promote the cars at the shows and on 4 wheels.

[ksmit2]

Pull the program of selling a loaded out Tahoe to someone with a four
hundred dollar tax refund down payment, and a "summer job" as income.
You might have a more stable business model.

[ksmit2]

Put it to a vote. Let the consumers vote to bail out either GM or Toyota.
I wonder how many laid-off employees Roger Smith "bailed out" when they
went from making a good salary with insurance and benefits, to selling
rabbits out of their carport.

[wilbursandersjr]

by hateisafourletterword March 11, 2010 2:15 PM EST
Don't need Chavez. He is a dumb socialist. We have Harvard trained socialists to ruin (I mean run) our lives.

Nicely said. Nicely said.

[jgg000101]

it's amazing that nowhere in this article is it mentioned that GMAC Finance became Ally Bank. GMAC Finance used to finance cars. Since the GM government bailout, Ally Bank was created as a full banking facility which is why it treated like other banks. The name was changed intentionally because it was feared that keeping the old GMAC name would scare customers away.

[amerilatino]

America public and private management has got to be the sorriest, most expensive way to fill a suit and tie in the entire world.

[pragmatist1]

So much for the wiz kids knowing what they were doing.

[golfered2]

Why don't we bring Chavez over and make him Obama's Vice President and we could nationalize all industries in the US and let the Obama government run everything!!!!!

[hateisafourletterword]

Don't need Chavez. He is a dumb socialist. We have Harvard trained socialists to ruin (I mean run) our lives.

[hateisafourletterword]

So the report states that GMAC was treated more like a bank. Well from what I have read, Chase, B of A and Wells Fargo have not only repaid the money but also the interest and we sold the warrants for billions in profits.

So why is it that GMAC will cost us billions while the banks will not in the end?

Now I understand. Bush and Paulson made the bank loans. Obama and Geithner made the GMAC loans. That pretty much explains it all.

[jxknowles]

You obviously need to do a lot more reading, or look elsewhere for factual information. I'm guessing Faux News and Rant Radio are your primary sources. You were one of the folks decrying the bank bailouts until recently, calling it socialism and the end of the United States. Wow, you can flip on a dime.

Candidate Obama worked with Paulson and Bernanke to come up with a plan to stabilize the banks starting October. It was apparent to everyone he had won the election already. Bush was a deer in the headlights, clueless and waiting for Janury 20 to roll around.

Bush having crawled out of the White House with his tail between his legs, left an economy that was hemmoraging 800,000 jobs/month. The GMAC and Chrysler loans were an attempt to curtail a complete shutdown of both auto makers, leaving several hundred thousand new workers without jobs.

To think Bush was making good economic decisions while Obama was not, is laughable. Bush's economic team was fudging numbers. They were telling Americans the economic foundation of the country was 'strong'. McCain bought in and he looked like a fool. Might have cost himt he election. thankfully.

[hateisafourletterword]

No jx, the banks were bailed out by Paulson and Bush starting in September 2008. Out of respect for the next President, President Bush consulted with both McCain and Obama so they were aware of what was going on.

GM and GMAC were bailed out in March 2009 - Bush was out remember.

So GMAC falls to Obama. I personally do not care if Obama and you take credit for the banks being saved, but to not take the fall for GMAC is disingenuous at best and totally fraudulent at worst.

[jxknowles]

$6.3 billion? We pooped that away in a couple of days during the height of the Iraq War. The tab for BUSH tax cuts to the wealthy, $2 trillion dollars. How many PERMANENT, HIGH PAYING jobs did that create? I don't enjoy losing taxpayer money, just like the next person, but let's keep things in perspective.

GMAC was the 10 pound tumor growing out of the side of your neck that people pretended wasn't there. Our economy was faltering badly, and to lose the entire auto industry would have made matters a lot worse. I don't like the auto bailout, but I can live with it. The bank bailouts have largely been repaid. No loss to the taxpayer. GMAC was a good gamble. Sometimes you win, sometimes you lose. Either way it was a good bet.