GAO questions Obama plan to dissolve auto team

David Shepardson / Detroit News Washington Bureau

Washington -- The Government Accountability Office is raising concerns about the Obama administration's plan to disband its auto team and shift oversight to another Treasury office.

Separately, the GAO disclosed that in its credit agreements, the Treasury Department won guarantees that the companies would keep significant production in the United States.

Chrysler Group LLC must either "manufacture 40 percent of its U.S. sales volume in the United States or its U.S. production volume must be at least 90 percent of its 2008 U.S. production volume." The 40 percent figure is roughly 5 percent below what Chrysler produced in 2008 in the United States.

A person familiar with the matter said a separate loan agreement with Canada requires Chrysler to maintain a fixed percentage of production there as part of Canada's loans to Chrysler.

General Motors Co. agreed to "use its commercially reasonable efforts" to ensure its production is "at least 90 percent consistent of the level envisioned in GM's business plan."

Both of the agreements were designed to prevent a massive off-shoring of production, a former administration official said.

The GAO, in confirming that the auto team will be replaced in the coming months, noted that just four of the original 12 professionals on the team remain. Some of them also are expected to leave in the coming months. The team also has an administrative staff of four.

"Treasury officials told us there will likely be additional staff reductions in the future because they plan to disband the auto team over time as other (Treasury) staff assume the role of monitoring the financial condition of the companies," the GAO said in a report. "We are concerned that 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."

The government has a 61 percent ownership stake in GM and nearly 10 percent stake in Chrysler.

The report noted that Ron Bloom, the administration's top auto adviser, recently was named to also head up its efforts on manufacturing. That, the GAO said, will "require him to split his time between the auto team and the new role."

Bloom declined to comment today.

Duane Morse, chief risk and compliance officer for the Treasury Department's Office of Financial Stability, told the GAO in an Oct. 23 letter that its recommendations were "constructive."

"Treasury continues to assess and take steps to maintain the expertise required to adequately monitor and manage Treasury's interests in Chrysler and GM," Morse wrote.

The auto team is holding monthly conference calls with the automakers and meeting every three months face-to-face, the GAO's report said. But in practice, the team has much more contact than that. As an example, GM CEO Fritz Henderson met last week with Bloom during a trip to Washington.

The biggest decisions Treasury faces are when to begin selling its stakes in the automakers, as well as its 35.4 percent stake in GMAC.

The GAO called for more transparency with Congress on its criteria for selling. Morse said Treasury officials will develop "an approach for reporting on its investments in the auto industry that strikes a balance between our goal of transparency and the need to avoid compromise either the competitive positions of these companies or Treasury's ability to recover funds for taxpayers."

The GAO report was the latest in a string of reports suggesting taxpayers are unlikely to get full repayment of the $81 billion invested in the auto industry. A congressional oversight panel report and former auto czar Steve Rattner are among those who have reported taxpayers will lose billions on their investment. Rattner said taxpayers have lost $25 billion of their investment in GM.

The government swapped most of its $62 billion investment in GM and Chrysler for equity in the companies -- meaning the government will only be repaid if the companies "grow substantially," GAO said. Treasury's internal analysis said this is "unlikely."

GM spokesman Greg Martin said the automaker is working to repay the government.

"If we get our job done, the government has an excellent chance of getting a return on its investment," Martin said.

The GAO is working on two other reports on the automakers. One looks at the impact of the companies' pension plans and the impact on the Pension Benefit Guaranty Corp. if either automaker decided to terminate its pension plans. It will be released early next year.

A second report, being written with the Special Inspector General for the $700 billion Wall Street bailout fund, is examining "the internal controls Treasury has established to manage its portfolio of investments and its interactions with the institutions, which include Chrysler and GM," GAO said.

dshepardson@detnews.com (202) 662-8735