Treasury missed chances to save on GMAC bailout - panel

By Julianne Pepitone, staff reporter


NEW YORK (CNNMoney.com) -- The Treasury Department did not adequately consider all options when bailing out troubled finance company GMAC and could have better protected taxpayers' money, according to a report released Thursday.

In its March report, the Congressional Oversight Panel expressed concerns about Treasury's handling of GMAC, the General Motors in-house credit arm that has received three government bailouts.

"We take no position on whether Treasury should have [bailed out] GMAC," said panel chair Elizabeth Warren, in a call with reporters. "But it missed ways to save taxpayers' money."

All told, taxpayers have put $17.2 billion into GMAC and it remains in doubt whether any of those funds will be repaid.

The report said Treasury missed opportunities to increase accountability and better protect taxpayers' money.

For example, the report noted, GMAC was not subjected to the same "sweeping changes" that auto companies were required to undergo in order to receive bailout funds: It did not wipe out equity holders. It also was not required to detail how it planned to return to profitability or provide a public explanation of how the company would use funds to increase lending.

GM ties were GMAC's 'salvation'

The panel's report explained that GMAC expanded over the years beyond auto lending to include home mortgages, auto insurance and financing for manufacturers. But it was GMAC's "historic ties to GM [that] would, in the end, prove to be its salvation," the report said.

When the auto industry began to collapse under the weight of the recession, the government deemed GMAC worthy of a bailout in order to save General Motors and Chrysler as it provided dealers with almost all of the loans to purchase inventory.

GMAC lost more than $5 billion in the first nine months of 2009 and has lost money in six of seven quarters, including two quarters in 2008 in which it lost at least $2.5 billion.

GMAC was one of 19 banks that underwent stress tests in order to determine whether it could survive under a deep economic downturn. The test revealed that GMAC needed more capital but could not raise it in the markets like other institutions.

As such, GMAC received $7.5 billion from the government at the end of 2008 and $6 billion in the middle of last year in an effort to shore up the sagging auto financing market.

GMAC was considered a poor candidate for bankruptcy in 2008, but the panel suggested such a plan "could have preserved GMAC's automotive lending functions while winding down its other, less significant operations ... and putting the company on sounder economic footing."

Also of concern, the panel said, is that Treasury has not adequately considered the possibility of merging GMAC back into GM. The report said this move would streamline GM's operations into a business model like that of most other auto manufacturers and would strengthen the automaker.

"The rescue also came at great expense," the report noted, "and taxpayers already bear significant exposure to the company."

Home mortgages: 'Millstone around the neck'

Warren, the panel chair, noted GMAC was so weighed down by losses in its residential mortgage unit that the company's chief executive once referred to the sector as "the millstone around the company's neck."

Losses on that residential mortgage portfolio accounted for $4 out of every $5 that GMAC lost last year -- that is, $8.3 billion out of the $10.3 billion that the company lost in total, Warren said.

GMAC officials testified before the panel last week, saying the company expects to repay the Treasury loans and issue common stock within two years, but those statements were met with skepticism.

Similarly, the panel expressed concern that GMAC has not been required to state a viable plan for its future or for repaying bailout funds.

"Moving forward, Treasury should clearly articulate its exit strategy," the report concluded. "More than a year has elapsed since the [first GMAC bailout] ... and it is long past time for taxpayers to have a clear view of the road ahead." To top of page

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