Financial Condition of GM and Ally Financial

		General Motors’s Financial Results Have Been Increasingly Positive Since Receiving Federal Assistance, but Questions Remain

Since receiving federal assistance, GM has shown increasingly positive  financial results. For each of the last 3 years, GM has reported profits, a  positive and growing operating cash flow, and a stable liquidity position. This improved financial performance has been reflected in GM’s credit  ratings, with each of the three largest credit rating agencies increasing  GM’s long-term credit rating. Furthermore, GM’s market share of vehicles sold in North America was  smaller than in 2008, and it continued to carry large pension liabilities. Treasury Is Working to Exit from Its Remaining Investments in GM and Ally Financial

		Treasury Plans to Exit from GM by Early 2014 but Projects a Loss on its Investment

Treasury invested over $51 billion in GM through AIFP. Through September 18, 2013, Treasury had recovered about $35.21  billion of its investments in GM and reduced its ownership stake to 7.32  percent through three major actions. The extent of the loss, however, will depend  on GM’s stock price. As of  September 2013, Treasury has announced the plan for unwinding its  preferred stock investments in Ally Financial, though not for its common  stock investment. The Federal Reserve found that Ally Financial’s tier 1  common capital ratio fell below the required 5 percent under the severely  adverse scenario. Of the 18 bank  holding companies reviewed in 2013, the Federal Reserve objected to  Ally Financial’s and one other company’s capital plans. Ally Financial faces growing competition in both consumer lending and  dealer financing from Chrysler Capital, GM Financial, and other large  bank holding companies. Similar to its GM investment, the eventual amount of  Treasury’s recoupment on its Ally Financial investment will be determined  by the share price of Ally Financial stock. However, Ally Financial remained the leader among the four  institutions for the same time period. In its written  comments, Treasury describes the auto industry’s recovery and the  progress Treasury has made in unwinding its investments in Ally  Financial and GM. Appendix I: Objectives, Scope, and Methodology

This report is based on our continuing analysis and monitoring of the U.S.  Department of the Treasury’s (Treasury) activities in implementing the  Emergency Economic Stabilization Act of 2008 (EESA), which provided  GAO with broad oversight authorities for actions taken under the Troubled  Asset Relief Program (TARP). Under TARP, Treasury established the  Automotive Industry Financing Program, through which Treasury  committed $51 billion to help General Motors Company (GM) and $16.3  billion to GMAC LLC, a financial services company that provides  automotive financing and that later became Ally Financial, Inc. (Ally  Financial). This report examines (1) the financial condition of GM and Ally Financial  and (2) the status of Treasury’s investments in the companies as well as  its plans to wind down those investments. To obtain information on the financial ratios and indicators used in  their analyses of GM’s or Ally Financial’s financial condition, we  interviewed staff from Treasury, the Board of Governors of the Federal  Reserve System (Federal Reserve), Federal Deposit Insurance  Corporation (FDIC), GM, Ally Financial, and analysts from the three  largest credit rating agencies as well as investment firms. We reviewed past GAO reports, information from GM’s and Ally  Financial’s annual 10-K filings with the Securities and Exchange  Commission, reports and documentation from Treasury and the  companies, and data from SNL Financial from 2008 through the second  quarter (June 30) of 2013. We also reviewed the credit ratings from three rating  agencies for each of these companies. For analyzing Treasury’s exit  from Ally Financial, we reviewed Treasury and Federal Reserve  documentation, such as Treasury’s monthly reports to Congress,  Treasury’s contractual agreements for the mandatory convertible  preferred shares, and the proposed capital plan that Ally submitted to the  Federal Reserve.
Why GAO Did This Study

As part of its Auto Industry Financing Program (AIFP), funded through the Troubled Asset Relief Program (TARP), Treasury committed $67.3 billion to automaker GM and to Ally Financial, a large bank holding company whose primary business is auto lending. TARP's authorizing legislation mandates that GAO report every 60 days on TARP activities.
This report examines (1) the current financial condition of the two companies and (2) the status of Treasury's investments in the companies and its plans to sell those investments.
To examine the financial condition of GM and Ally Financial, GAO reviewed industry, financial, and regulatory data for the time period from the beginning of 2008 through the second quarter of 2013. GAO also reviewed Treasury reports and documentation detailing Treasury's investments in GM and Ally Financial and its proposed strategies for divesting itself of the investments, as well as both companies' financial filings and reports. In addition, GAO interviewed officials from Treasury, the Board of Governors of the Federal Reserve (Federal Reserve), GM, Ally Financial, and financial analysts who study GM and Ally Financial.
In its written comments on a draft of this report, Treasury describes the auto industry's recovery and the progress Treasury has made in unwinding its investments in GM and Ally Financial. Treasury, the Federal Reserve, GM, and Ally Financial also provided technical clarifications, which were incorporated, as appropriate.

What GAO Found

Since receiving federal assistance, General Motors Company (GM) has shown increasingly positive financial results. For each of the past 3 years, GM has reported profits, positive and growing operational cash flow, and a stable liquidity position. This improved financial performance has been reflected in GM's credit rating, as each of the three largest credit rating agencies has increased GM's long-term credit rating. However, GM faces continued challenges to its competitiveness. For instance, its market share of vehicles sold in North America remains smaller today than in 2008. Furthermore, GM continues to carry large pension liabilities.
With Treasury's investments in Ally Financial, the company's condition has stabilized. For example, Ally Financial's capital and liquidity positions have stabilized or improved over the last 4 years. Such improvements have been noted by the three largest credit rating agencies, each of which has upgraded Ally Financial's credit rating. However, Ally Financial's credit rating remains below investment grade and its mortgage unit--Residential Capital LLC--impacted the company's financial performance. The mortgage unit filed for bankruptcy in May 2012, and these proceedings are ongoing. Analysts with whom GAO spoke indicated that the resolution of its mortgage unit's bankruptcy will be a positive development for Ally Financial's future financial performance.
As of September 18, 2013, the Department of the Treasury (Treasury) has recovered about $35.21 billion of its $51 billion investment in GM and reduced its ownership stake from 60.8 percent to 7.32 percent. By early 2014, Treasury plans to fully divest its GM common shares through installments and estimates that it will lose at least 19 percent of its original investment. Treasury is working to exit from Ally Financial with a recent agreement to sell all of its preferred stock to the company for approximately $6 billion, but Treasury faces challenges. As a regulated bank holding company, Ally Financial must be well capitalized to receive its regulator's approval to repurchase shares from Treasury. Earlier this spring, Ally Financial's tier 1 common ratio fell below the required 5 percent in the Federal Reserve's "stress test," and the Federal Reserve objected to the company's capital plan. Ally Financial also faces growing competition in the consumer lending and dealer financing sectors that could impact its financial performance in the future. The extent of Treasury's recoupment on its Ally Financial investment will depend on the ongoing financial health of the company.