Auto Industry

Several efforts were initiated under TARP to address the condition of the American auto industry during the financial crisis. The Automotive Industry Financing Program (AIFP) was launched in December 2008 to prevent the uncontrolled liquidation of Chrysler and General Motors (GM) and the collapse of the U.S. auto industry. The potential for such a disruption at that time posed a significant risk to financial market stability and threatened the overall economy. It could have also had disastrous consequences for other auto manufacturers and the many suppliers and other businesses that depend on the automotive industry. This could have led to a loss of as many as one million American jobs. Recognizing that both GM and Chrysler were on the verge of collapse, the Bush Administration extended temporary loans to both companies and their financing entities in December 2008.

 

When President Obama took office, he decided that he would not commit any additional taxpayer resources to these companies unless they developed plans to achieve long-tern viability. The Obama Administration rejected the initial viability plans submitted by GM and Chrysler and required both companies to develop more ambitious plans, under which all stakeholders, including unions, dealers, creditors, and others, would make substantial sacrifices. Both companies brought in new management, and their operations were restructured through proceedings in bankruptcy court in record time. These actions paved the way for a turnaround of the companies and the entire domestic automotive industry.

 

In total, Treasury committed $12.5 billion to Chrysler under TARP. Under the loan agreement, Chrysler was required to implement a viable restructuring plan. In March 2009, the Administration determined that the business plan submitted by Chrysler failed to meet that standard and concluded that Chrysler was not viable as a stand‐alone company.

 

The Administration subsequently determined that Chrysler could achieve viability by partnering with the international car company Fiat. As part of the planned restructuring, in April 2009, Chrysler filed for bankruptcy protection. In May 2009, Treasury provided $1.9 billion to Chrysler (Old Chrysler) under a debtor‐in‐possession financing agreement for assistance during its bankruptcy proceeding.

 

Chrysler emerged from bankruptcy in June 2009 as a newly formed entity, Chrysler Group LLC (New Chrysler). Since then, Chrysler has lowered its structural costs, adopted new technologies, rejuvenated its product line, and rebuilt its brands. As of April 2011, the company had achieved five consecutive quarters of operating profit and on March 31, 2011, Chrysler realized its first quarter of positive net income since exiting bankruptcy.

 

Treasury provided a total of approximately $50 billion to GM through TARP, under a loan agreement that required GM to submit a viable restructuring plan. The first plan submitted by GM failed to establish a credible path to viability, and the company was given additional time to put forward a revised proposal. GM's revised plan was determined to be viable, and on June 1, 2009, GM began an orderly restructuring process by filing for bankruptcy.  It emerged from bankruptcy just 40 days later, and began, what is today, a remarkable turnaround.

 

As part of the government's assistance to the automotive industry, Treasury also invested a total of $17.2 billion of TARP funds in Ally Financial (formerly GMAC). Founded as GM's captive finance subsidiary in 1919, Ally has been the primary source of financing for GM's dealers and consumers for over 90 years. Treasury determined that without government assistance, Ally would have been forced to suspend financing lines to creditworthy dealerships, leaving them unable to purchase automobile inventory for their lots.  Without orders for cars, GM would have been forced to slow or shut down its factories indefinitely to match the drop in demand. Given its significant overhead, a slow-down or stoppage in production of this magnitude would have toppled GM.

 

Chrysler Financial

 

Treasury also provided loans through the Auto Supplier Support Program (ASSP), to ensure that auto suppliers received compensation for their services and products, regardless of the condition of the auto companies that purchase their products. Treasury has recovered all amounts invested under this program.

 

In the Auto Warranty Commitment Program (AWCP), Treasury provided loans to protect warranties on new vehicles purchased from GM and Chrysler during their restructuring periods. Treasury has recovered all amounts invested under the warranty program.

 

Read more about the program status.