TARP Watchdog Issues Report on GM Decision to Top Up Delphi Pensions

David Goldman/Associated Press

A new report by special inspector general for the Troubled Asset Relief Program, Christy Romero, takes a look at the U.S. Treasury’s role in requiring the “new” General Motors to take on the pension obligations of unionized workers employed at the auto maker’s former parts subsidiary.

The quick takeaway: Treasury’s auto team decided GM couldn’t survive a lengthy Chapter 11 case and pushed for a 40-day quick rinse bankruptcy. The keys to a successful quick-rinse bankruptcy, Treasury believed, was striking deals with the two groups—bondholders and the United Auto Workers—who could derail the plan. Also, Treasury’s “influence” on—and some would say strong-arming of—GM to “top up” Delphi’s pensions helped save the auto maker from collapse and avoided the systemic consequences that Treasury feared.

Below are a few choice bits from the report, which you can read here.

  • Auto Team leader [Steven] Rattner told SIGTARP that getting more on pensions “was a game of chicken we didn’t want to play. We were under incredible time pressure,” adding “it was not a ridiculous request, and one that we could have honored and needed to honor.” CEO [Fritz] Henderson told SIGTARP that the pressure to finish the negotiations resulted in no negotiation of the top-up, “the focus was on getting the deal done,” and that if the top-up was not assumed, “it would have been ‘mission impossible.’”
  • When an Auto Team official was asked by SIGTARP how the Auto Team conveyed their preference or nudged GM to see things the way the Auto Team saw them, given that ultimately GM could do its own thing, the Auto Team official said, “Well, they could, but then they couldn’t exist. I mean, as I said, as the lender we had a fair amount of leverage.”
  • Treasury’s Auto Team created a condition on funding GM’s bankruptcy that would serve as pressure on GM and would drive pre-bankruptcy negotiations and decisions. Treasury conditioned giving GM $30.1 billion in TARP funds on a  “quick-rinse bankruptcy” that would end in 40 days because Auto Team officials  thought that was the best way to save the automobile industry, concerned that GM  could not survive a lengthy bankruptcy and GM’s failure would have broader  systemic consequences. Treasury Auto Team officials deemed speed as essential and were concerned that if GM’s bankruptcy was prolonged, consumers would stop purchasing GM’s automobiles, and GM would likely fail.

UPDATE:  The Treasury Department, which has often been at odds with the inspector general’s office over its handling of TARP, took issue with the report. Assistant Secretary Timothy Massad said in a response letter that “the report makes a number of judgments and characterizations, particularly with regard to the decision-making process, that we do not believe to be supported by the facts stated above, or any others in the report.”

He added the report makes clear that GM’s decision to provide supplemental pension benefits, or “top-ups,” to certain Delphi hourly retirees, but not to do so for salaried retirees, was driven by sound commercial reasons.

Write to Patrick Fitzgerald at [email protected]. Follow him on Twitter at @PatFitzgerald1.