Taxpayer losses seen in auto-industry rescue

WASHINGTON - Taxpayers face losses on a significant portion of the $81 billion in government aid provided to the auto industry, an oversight panel said in a report released yesterday.

The Congressional Oversight Panel did not provide an estimate of the total projected loss in its latest monthly report on the $700 billion Troubled Asset Relief Program. But it said most of the $23 billion initially provided to General Motors Corp. and Chrysler L.L.C. late last year was unlikely to be repaid.

"I think they drove a very hard bargain," said Elizabeth Warren, the panel's chairwoman and a law professor at Harvard University, referring to the Treasury Department. "But it may not be enough."

The prospect of recovering the government's assistance to GM and Chrysler is heavily dependent on shares of the two companies rising to unprecedented levels, the report said. The government owns 10 percent of Chrysler and 61 percent of GM. The two companies are currently private, but they are expected to issue stock, in GM's case by next year.

GM's market value would have to reach $67.6 billion, the report said, a "highly optimistic" estimate and about $10 billion more than GM was worth at the height of its share value in April 2008. In the case of Chrysler, about $5.4 billion of the $14.3 billion provided to the company in 2008 is "highly unlikely" to be repaid, the panel said.

Treasury Department officials have acknowledged that most of the $23 billion provided by the Bush administration was likely to be lost. But Meg Reilly, a department spokeswoman, said there was a "reasonably high probability of the return of most or all of the government funding" that was provided to assist GM and Chrysler with their restructurings this year.

Administration officials have said they want to maximize taxpayers' return on the investment but want to dispose of the ownership interests as soon as practicable.

The report recommends that Treasury perform a legal analysis of its decision to provide TARP funds to GM and Chrysler, their financing arms, and many auto-parts suppliers. Some critics say the law creating TARP did not allow for such funding.