The Government Accountability Office concluded that General Motors Co. and Chrysler Group LLC likely won't be valuable enough for the Treasury Department to break even on its investment in the two auto companies that went though bankruptcy earlier this year.
The GAO also revealed that the Obama administration is closely scrutinizing the finances of GM and Chrysler and has set some requirements on production even though it has said it will maintain a hands-off approach on the automakers' daily operations.
To recover the loans Treasury gave Chrysler and GM to keep them afloat, the automakers would have to reach valuations they didn't approach even when they were healthier.
Treasury officials said they were considering a series of initial public offerings to dispose of the government's 61 percent stake in GM. For Chrysler, a private sale of the government's nearly 10 percent stake is more likely because of the government's minority ownership.
GM would need a market capitalization, or the market value of the company's outstanding shares, of $66.9 billion for Treasury to make its money back, according to GAO. GM's peak market value was $57 billion in 2000. Chrysler, which was last publicly valued at $37 billion in 1998 when it merged with Daimler AG, would need a market value of $54.8 billion.
Treasury officials told GAO that the companies' previous equity values were not comparable because GM and Chrysler have undergone substantial reorganizations through bankruptcies. The Obama administration has said it is confident it can recover the bulk of its investment in the GM and Chrysler restructurings.
GM spokesman Greg Martin said "if we get our job done, the government has an excellent chance of getting a return on its investment." Chrysler declined to comment.
In September, the Congressional Oversight Panel reviewing the $700 billion Troubled Asset Relief Program said most of the $23 billion initially provided to General Motors and Chrysler late last year was unlikely to be repaid. GAO did not provide an estimate of how much might be returned to taxpayers.
Treasury officials reiterated that they don't plan to be involved in the companies' day-to-day management. But as a major creditor and equity holder, Treasury is closely scrutinizing the financial well-being of Chrysler and GM.
In GM's case, it must supply 13-week forecasts every two weeks, monthly reports on its liquidity and monthly budgets covering a five-year period. All financial statements, budgets and other material must be turned over to Treasury as long as it owns 10 percent of GM. The automaker must provide its consolidated balance sheet until it repays its loans. Chrysler is required to make similar disclosures.
Both automakers must keep much of their manufacturing in the United States. Chrysler must produce either 40 percent of its U.S. sales volume domestically or come near its 2008 U.S. production volume. GM agreed to give its "best efforts" to keep its U.S. manufacturing within 90 percent of its business plan.
The companies are also subject to limits on executive pay and corporate expenses. Italy's Fiat Group SpA can increase its stake in Chrysler if it produces a new engine in the United States or a car that gets 40 miles per gallon.
Treasury officials told the GAO that the measures were meant to protect the government's financial interest, but acknowledged that they "reflect the administration's views on responsibly utilizing taxpayer resources for these companies," the GAO report said.
GAO also questioned staffing levels for the administration's auto task force. Treasury officials told GAO that they plan to disband the team over time as other Treasury aides monitor the companies' financial conditions. Once made up of 16 staffers, the task force now has just four professional staff members. Former task force head Steve Rattner has left, while Ron Bloom, a key member, is now also advising the administration on manufacturing policy.
GAO said it was concerned Treasury "may not have sufficient expertise to actively oversee and protect the government's ownership interests, including determining when and how to divest these interests."