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Was the Auto Industry Bailout Legal? It’s Debatable, Oversight Panel Says

11:56 AM EDT on September 9, 2009

The Treasury Department sent $81 billion in taxpayer-subsidized aid to General Motors and Chrysler -- which is unlikely to be recouped in full -- using legal authority that "is the subject of considerable debate," according to a report released today [PDF] by the congressionally appointed bailout oversight panel.

3c7e114d_8a91_4fe2_904e_48142d17f617.jpgRon Bloom, the president's top manufaturing adviser. (Photo: AP via HuffPo)

The bailout legislation approved in October allowed Treasury to take over "troubled assets from any financial institution," but provided a very broad definition of the term.

That "ambiguity about congressional intent," the oversight panel stated, helped ensure that "Treasury has faced no effective challenge to its decision to use [bailout] funds for this purpose [of rescuing automakers]."

Media coverage of the report has focused on the panel's finding that GM and Chrysler would have to post an unprecedented financial turnaround in order to fully repay obligations to the government.

But the oversight panel isn't alone in concluding that taxpayers have a slim chance of recovering all their investments in the auto industry -- Ron Bloom, President Obama's chief manufacturing adviser, agrees.

From a footnote in the oversight panel's report:

During a meeting with Panel staff on August 11, 2009, Mr. Bloom explained that it was possible but unlikely that taxpayers would recover all of the money they had invested in Chrysler and General Motors. Mr. Bloom has acknowledged that “likely scenarios involve a reasonable probability of repayment of substantially all of the government funding for new GM and new Chrysler, and much lower recoveries for the initial loans.”

Those initial loans, the panel explained, are the $23.4 billion lent by Treasury to the pre-bankruptcy incarnations of the two struggling car companies.

So now that U.S. taxpayers have an inescapable stake in GM and Chrysler, what conditions should they expect the government to impose on the automakers?

The oversight panel, led by Harvard Law School professor Elizabeth Warren, urges Treasury to refine its multitude of potentially conflicting objectives for the auto bailout into a specific set of goals -- and provide that long-overdue legal justification for the $81 billion rescue.

Rep. Jeb Hensarling (R-TX), the only panel member to dissent from okaying today's report, released his own hard-hitting recommendations. One of them touches on issues of great concern to environmentally motivated bailout critics:

The management of Chrysler and GM should provide the American taxpayers with a quarterly business plan that addresses, without limitation, the following challenging issues:

  • Without a growing SUV market, how do Chrysler and GM plan to compete against the Asian and European manufacturers who have all but perfected the design and manufacture of well-built, fuel efficient cars? ...
  • How do Chrysler and GM plan to develop the design and technical expertise necessary to build vehicles with the fit-and-finish and price-point of, for example, a Honda Accord or Civic or a Toyota Camry or Corolla, not to mention a Toyota Prius?

Chrysler's statement to the panel offers an illuminating answer to Hensarling's first question. According to the company's proprietary surveys, "Americans feel that fuel prices will be, on average, $2.89 per gallon in one year and $4.50 in five years."

A poll released by IBM this month found that more than 50 percent of commuters would take a harder look at replacing driving with transit, biking, or walking if gas hit $4.50 per gallon. So Chrysler may well see its day of reckoning ... in five years.

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