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Taxpayers will lose on auto bailouts

Taxpayers will lose on auto bailouts

CNN Money
September 9, 2009

Much of the money given to General Motors and Chrysler to prevent them from collapsing will never be recovered, according to a report released Wednesday by the Congressional Oversight Panel.

“Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount,” the report says, citing estimates from the Treasury Department and Congressional Budget Office.

The oversight panel, headed by Harvard University professor Elizabeth Warren, was created by Congress last year to oversee the $700 billion Troubled Asset Relief Program.

GM and Chrysler were each teetering on collapse this spring when the Obama administration effectively forced both automakers into bankruptcy, lending them enough to survive. Both have shed billions of dollars in debt and are now rebuilding.

All told, since late last year, the government has provided or pledged the two companies, icons of American manufacturing, more than $60 billion in aid.

Treasury estimates that about $23 billion of initial loans to the two companies “will be subject to ‘much lower recoveries,’ ” the panel’s report says. In particular, $5.4 billion of loans to Chrysler are “highly unlikely to be recovered,” it continued.

“The initial loans made last fall as the industry was imploding and when no restructuring plan was in place are not likely to be repaid in full,” Warren said during a conference call with reporters.

How much of the remaining funds will be recovered is impossible to predict, Warren said, because the loans have been converted to stock.

“The American taxpayer is now an equity investor in Chrysler and GM,” Warren said. “And the return on its investment depends on what those companies are worth in a year or two.”

The government owns 10% of Chrysler and 61% of GM.

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