Full recovery of auto investment unlikely

By Ken Thomas and Stephen Manning
Associated Press / November 3, 2009

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WASHINGTON - Taxpayers are unlikely to recover their full investment in General Motors or Chrysler, government investigators said yesterday in the latest review to cast doubts that the government will recoup the $80 billion it poured into the two automakers.

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 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.

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.