The Treasury Department opted not to restore the pensions of salaried Delphi retirees during the General Motors’ 2009 bankruptcy process because they had “no leverage” to hold up GM’s bankruptcy while union retirees did, according to a government watchdog report released Thursday.
The report, by the Office of the Special Inspector General for the Troubled Asset Relief Program, found that while Treasury showed little interest in restoring pensions for salaried employees, it pushed GM to restore the pensions of United Auto Worker retirees in hopes of emerging from bankruptcy within an aggressively short 40-day period without risking a strike or other delay.
The 57-page report, which offered no recommendations, found that the four-member “Auto Team” – a group of Treasury officials tasked with guiding GM through its restructuring after the federal government loaned the company $13.4 billion – “was supposed to be advisory in nature, but often was not. Because Treasury became GM’s only lender and later its largest investor, the Treasury Department had “significant leverage and influence on GM’s decisions leading up to and through the bankruptcy,” the report found.
One GM official summed it up in the report: “Ultimately it was that GM is not in control. And GM is totally dependent.”
The report found that GM had little say in whether they could continue to authorize benefits for the salaried retirees, and needed Treasury’s consent to offer such benefits. Steven Rattner, leader of the Auto Team, told the inspector general that at one point GM approached the Auto Team because it wanted to help the salaried employees. Rattner ultimately told the inspector general that “there was nothing defensible from a commercial standpoint that could be done for Delphi salaried retirees.”
“That’s not to say that people didn’t lose a lot or (were) hurt or were treated in a way that – sort of in a human way that you would say that’s unfair,” said Ron Bloom, another member of the Auto Team. “I don’t think anybody thinks bankruptcy is fair. It is what it is, though.”
Treasury estimated that salaried retirees would lose about $440 million in pension benefits in the bankruptcy process. The cost of restoring those benefits would be an equivalent amount.
“We felt bad,” Rattner told the inspector general, “but we didn’t think it was justifiable.”
The 2008 and 2009 process occurred after the U.S. auto industry lost 50 percent of its sales volume and more than 400,000 jobs, When it became apparent that GM might file for bankruptcy, Treasury provided GM with a $13.4 billion loan, and President Obama convened a task force aimed at evaluating auto companies’ restructuring plans and negotiating the terms of any further assistance. Delphi, which was part of GM until it spun off from the larger company in 1999 but which has remained a key supplier to the auto company, was part of the negotiations, in part . While Treasury originally attempted to be relatively hands-off, GM’s initial reluctance to declare bankruptcy ultimately spurred them to become more involved.
“GM realized that there was no other available source of money,” one Auto Team official told the inspector general.
At one point, according to the inspector general, President Obama became involved, asking his advisors for more information. Larry Summers, head of the National Economic Council, prepared a briefing memo to Obama. “There was no further action,” the report said.
Still, the issue became a source of contention in the 2012 presidential election, with both Obama’s campaign and GOP nominee Mitt Romney’s campaign exchanging attacks on the issue.
In all, the 2009 auto bailout cost the federal government more than $20 billion. In December 2011, Rattner acknowledged that Treasury may have overpaid. “We put more cash into GM than we probably needed to – and we knew this,” he told the Detroit News. “It’s part of why GM is so well-capitalized today.”
The GM bankruptcy initially resulted in other, smaller unions – including the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers and the United Steel Workers – seeing their pensions cut as well “because those unions did not have leverage.” But GM later decided to top up the smaller unions’ pensions at an estimated cost of $350 million because they had some leverage to prolong Delphi’s bankruptcy or strike, “which GM believed would significantly impact its ability to survive.”
Rep. Mike Turner, R-Dayton, who requested the inspector general’s report, said the report “discredits” the administration’s assertion that it did not influence the bankruptcy process.
“The administration thwarted the bankruptcy process for a politically expedient outcome,” he said. “What we have here is Treasury stepping in and perverting the process of the bankruptcy court, using their influence to make certain that the outcome was politically desirable to the administration and the Delphi salaried retirees losing their pensions. That’s enough for us to continue to push on the congressional side for a resolution to this.”