Washington – Senator Chuck Grassley is asking the Special Inspector General for TARP to look into the details of General Motor’s purchase of an auto loan company, including the Treasury Department’s involvement in the acquisition. General Motors is 61 percent owned by the U.S. government as a result of TARP.
Grassley made his request in a letter sent this afternoon.
About the purchase reported today, Grassley said, “If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first. After GM’s experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans.”
Grassley has conducted some of the most aggressive oversight of the government’s implementation of the financial bailout, including executive compensation, severance payouts, and documentation of how taxpayer dollars have been used. Grassley worked to establish the independent Inspector General to oversee the program and successfully strengthened the watchdog’s power when the program was altered after enactment.
Earlier this year, Grassley exposed the fact that GM “paid back” its taxpayer-funded loan with other taxpayer dollars from the government’s purchase of GM stock. Contrary to an extensive public relations campaign by the automaker and Treasury Department that the bailout had been paid back “in full, with interest, ahead of schedule,” most of the government’s emergency loan to GM was converted to shares of stock during bankruptcy. That money can only be recovered if the government can sell its shares of GM at significantly higher prices than it is currently estimated to be worth.
Below is the text of today letter from Grassley to Neil Barofsky, the Special Inspector General for TARP.
July 22, 2010
The Honorable Neil M. Barofsky Special Inspector General Office of the Special Inspector General Troubled Asset Relief Program 1500 Pennsylvania Avenue, NW, Suite 1064 Washington, DC 20220
Dear Special Inspector General Barofsky:
I read with concern reports that General Motors has announced it is paying $3.5 billion in cash to purchase AmeriCredit Corp., a company that specializes in auto loans to borrowers with poor credit. As you know, GM is a major TARP recipient that received a $49.5 billion taxpayer bailout. Most of that money has not been repaid, and the nonpartisan Congressional Budget Office estimates that the GM bailout will end up costing taxpayers around $30 billion.
It also has been reported that GM paid a 24% premium for AmeriCredit, meaning that GM managed to pay over $800 million more for the company than it was worth in the public markets just a few days ago. The purpose of the acquisition, according to reports, is to allow GM to expand loans to customers with poor credit beyond the levels that companies such as AmeriCredit already finance and to enhance GM’s upcoming IPO offering. The implication appears to be that GM intends to lower AmeriCredit’s lending standards in order to boost GM’s sales figures.
Because taxpayers still have a large stake in GM, I ask that you conduct an inquiry into the level of due diligence and analysis that went into GM’s acquisition. Specifically, what role did Treasury play in reviewing and approving the transaction? Over the long run, will the acquisition of AmeriCredit at the price paid by GM increase the likelihood that the American taxpayer will recover more of its money from GM than currently estimated? At a minimum, the American people deserve to know whether GM conducted an analysis of this acquisition with the best interests of the taxpayer in mind.
Please provide periodic updates on your progress, and in the event that the Office of Special Inspector General has any difficulty, for example, obtaining access to any of the materials or persons needed to conduct this review in an efficient and effective manner, I request that you contact me immediately. Thank you in advance for your assistance in this matter.
Chuck Grassley United States Senator Ranking Member of the Committee on Finance