GMAC Bailout Could Cost Taxpayers Billions, Watchdog Says

WASHINGTON, March 11, 2010— -- A bailout watchdog warned Thursday that the three infusions of federal for troubled lender GMAC could end up costing taxpayers billions of dollars.

In a new report, the Congressional Oversight Panel said it is "deeply concerned" that the Treasury Department has not insisted that GMAC "lay out a clear path to viability or a strategy for fully repaying taxpayers."

To date the government has dished out $17.2 billion for GMAC, giving taxpayers a 56 percent stake in the credit arm of General Motors. The latest infusion of federal funds for GMAC came in late December, shortly before the lender announced a fourth-quarter loss of $5 billion.

While the watchdog acknowledged that the government bailout of GMAC "played a major role in supporting the domestic automotive industry," the Panel cautioned that the bailout "came at great public expense" and may also have obstructed "the growth of a more competitive lending market."

The Office of Management and Budget has stated that taxpayers could lose $6.3 billion or more from bailing out the lender.

"Moving forward, Treasury should clearly articulate its exit strategy from GMAC," the panel said. "More than a year has elapsed since the government first bailed out GMAC, and it is long past time for taxpayers to have a clear view of the road ahead."

Treasury, the watchdog said, "missed opportunities to increase accountability and better protect taxpayers' money." Sending the lender into bankruptcy, the panel found, could have been a "viable option."

"Treasury might have been able to orchestrate a strategic bankruptcy for GMAC," it said.

Treasury Defends Handling of GMAC Bailout

The chief problem area for GMAC has been substantial losses at the lender's home mortgage unit Residential Capital, which was battered during the housing meltdown by heavy investments in subprime loans.

The lender said in December that it would "explore strategic alternatives" for the unit, calling it "a major drain" on the company.

In response to the watchdog's new report, Treasury spokeswoman Meg Reilly stated that the government's actions had helped give GMAC and bailed-out automakers General Motors and Chrysler "a new lease on life and a real chance to succeed."

If the government had allowed the troubled lender to fail, a GMAC bankruptcy would have had "a crippling effect" on dealer financing and hurt the ability of dealers to buy GM and Chrysler vehicles, thereby draining the automakers' revenues and "leading to plant closures and countless job losses," Reilly said.