U.S. says it has clear path to selling GM stake
U.S. says it has clear path to selling GM stake
Automotive News | June 22, 2011 – 3:38 pm EST
UPDATED: 6/22/11 9:33 pm ET
WASHINGTON — The U.S. government has a “clear path” to sell its remaining stake in General Motors, a senior Obama administration official said on Wednesday.
The U.S. government plans to exit its investment in GM “as soon as practicable,” former auto czar Ron Bloom told the Committee on Oversight and Government Reform, according to prepared remarks posted on the committee’s website.
GM went public last year, allowing the U.S. government to nearly halve its 61 percent stake in the automaker that stemmed from its federal bailout in 2009. The government currently holds 32 percent of GM’s common equity.
“The government remains a reluctant shareholder and intends to dispose of its investment as soon as practicable, with the dual goals of achieving financial stability and maximizing returns to taxpayers,” Bloom told the government committee, which has broad oversight on government policies.
Bloom, now the White House manufacturing adviser, testified during a hearing called “Lasting Implications of the General Motors Bailout.” Vincent Snowbarger, the director of the Pension Benefit Guaranty Corp, also testified.
Sources previously told Reuters the U.S. Treasury did not plan to sell its remaining shares in GM until August, after the automaker’s second-quarter earnings report.
The Wall Street Journal reported today that the timing of the stock sale is creating a bigger impasse between GM and U.S. Treasury officials.
GM is eager to remove government restrictions on executive pay. The Obama administration wants out of GM before the 2012 presidential campaign heats up.
GM shares have fallen below their $33 IPO price, due in part to concerns about government involvement. GM stock rose 38 cents or 1.3 percent to $29.97 on the New York Stock Exchange.
Bloom declined to discuss the effect of the bailout on the underfunded pension plans at U.S. auto supplier Delphi because he has been named a defendant in a lawsuit related to pension shortfalls in federal court in Michigan.
Delphi was spun off from GM in 1999. Delphi sought bankruptcy protection in 2005 and emerged four years later.
In 2009, the PBGC took control of billions of dollars of retirement obligations for 70,000 workers and retirees at Delphi. The PBGC is the U.S. agency that insures corporate pensions.
In his prepared remarks, Snowbarger said the PBGC is now responsible for about $6 billion of the Delphi plans’ shortfall, but about $1.2 billion of benefits is not guaranteed by the insurance program.
Republican lawmakers criticized what they called preferential treatment the Obama administration gave to certain union pensions as part of the GM bailout.
During the hearing, Republicans accused the administration of siding with Delphi’s unions, and leaving many nonunion, salaried employees empty-handed.
Under Delphi’s bankruptcy reorganization, roughly 21,000 salaried employees lost up to 70 percent of their pensions, as well as life and health insurance.
GM promises to ‘top up’
Under its separation agreement with Delphi in 1999, GM maintained its supply relationship and an agreement that three unions, including the United Auto Workers, would be compensated by the automaker in the event Delphi was forced to seek bankruptcy protection.
The deal required that GM make whole, or “top up,” the remainder of the pensions not covered by the U.S. government. The automaker didn’t make similar agreements with salaried employees.
At the time of GM’s bailout, the administration instructed the Auto Task Force to ensure “that all stakeholders were treated fairly and received neither more nor less than they would have simply because the government was involved.”
On Wednesday, Republicans asserted that the task force did not uphold that standard.
“The administration picked winners and losers where the pensions of many salaried Delphi workers were lost. This was done without any justification,” said Rep. Michael R. Turner (R-Ohio).
The alternative to cutting pensions was liquidating the company, Bloom told the committee, according to The Los Angeles Times.
“These two companies came to the government in a state of insolvency,” Bloom said, referring to GM and Chrysler. “Unfortunately, what that means is that they simply had made more promises to people than they were able to honor.”
Delphi salaried retirees have filed suit to recover a portion of their pension benefits.
“The administration absolutely picked winners and losers in the bailout — the losers were the American taxpayers,” said Rep. Mike Kelly, a Republican from Pennsylvania whose Cadillac dealership was almost shut down during the GM restructuring.
“It is frightening to even think about allowing this precedent to stand,” said Bruce Gump, a retiree of Delphi who lost part of his benefit when the government seized Delphi’s pension plan in bankruptcy.
‘This is troubling’
According to The New York Times, Gump and others who testified argued that the two-tiered outcome undermined the rule of law in bankruptcy, where retirees with underfunded pensions are normally considered unsecured creditors, whether they belong to a bargaining unit or not.
Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, and Sen. Rob Portman, R-Ohio, released a letter today saying the Delphi pension issue “merits further scrutiny by Congress.”
“These salaried retirees will lose a significant portion of their pension benefits, while those they worked next to for years will receive their full promised benefits,” they wrote in a letter obtained by The Detroit News. “This is troubling.”
During the heated hearing, Bloom repeatedly defended the rescue.
“The entire ability of the United States to make cars was at risk as this point,” he said. “What the American taxpayers get is the fact that they have an automobile industry.”
Reuters and David Phillips contributed to this report
Ron Bloom: “The government remains a reluctant shareholder and intends to dispose of its investment as soon as practicable.”
Photo credit: GLENN TRIEST
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