Bloomberg News

U.S. Urged Bailout Funds to Delphi Pensions, Watchdog Says (1)

August 15, 2013

The U.S. government urged General Motors (GM:US) Co. to improve pensions of some Delphi Automotive Plc union retirees while cutting those of salaried workers to help ensure a speedy emergence from a GM bankruptcy, the watchdog of the Troubled Asset Relief Program said.

As part of the bailout of GM and Chrysler Group LLC in 2009, the Treasury Department used some money for a so-called top-off of pensions for hourly employees at auto-parts supplier Delphi, which GM spun off in 1999. Salaried Delphi retirees had their pensions cut as part of the agreement.

Demands from the United Auto Workers representing the retirees threatened to stall GM’s bankruptcy, according to a report today from the TARP’s special inspector general. As a result, government officials led by Steven Rattner pressed the Detroit-based automaker to reach an agreement on the pension liabilities before the bankruptcy, the report said.

The Treasury’s auto team “made it clear to GM that they wanted an agreement with the UAW prior to bankruptcy and the auto team actively negotiated and made the overall deal,” according to the report. “Treasury’s auto team and GM did not agree to top up the pensions of other former GM employees at Delphi, which did not have active employees at GM, and therefore had no leverage to hold up GM’s bankruptcy.”

The TARP special inspector general said in the report that it made no recommendation after a review of the matter.

Delphi shares, which have risen about 42 percent this year, fell 2.4 percent today to $54.20.

Restructuring Effort

GM was facing default when the government, concerned about the effects on the automaker’s supply chain and the U.S. economy, agreed to step in in late 2008. Previous restructuring efforts to address labor costs and declining U.S. market share had fallen short when auto sales plummeted to a 16-year low.

In exchange for about $50 billion in investments, the Treasury became the majority owner with a 61 percent stake in the GM that emerged from bankruptcy in July 2009, according to the report.

As of June 5, the government’s share (GM:US) was 13.7 percent, according to data compiled by Bloomberg.

The department said it had recovered about $35 billion of its GM investment as of July 31.

Auto Aid

President George W. Bush agreed to the first installment of U.S. aid. Obama accelerated the process with Rattner, co-founder of the private-equity firm Quadrangle Group LLC, and Ron Bloom, a former United Steelworkers union adviser and Lazard Ltd. (LAZ:US) vice president.

GM cut executive pay and eliminated 47,000 jobs in 2009, dropping U.S. brands and closing plants in return for $13.4 billion in Treasury loans.

The Delphi pension decision was also made to preserve the Pension Benefit Guaranty Corp., the government agency that takes over payments to retirees of bankrupt companies. A Government Accountability Office report in 2010 said that losses to GM and Chrysler pension plans could have reached $14.5 billion if the companies didn’t return to profitability.

The union pension issue was among others in which the Treasury exerted its influence over GM during the company’s restructuring, today’s report showed.

Lender’s ‘Leverage’

Members of the Treasury’s auto team that President Barack Obama designated to rescue GM “used their leverage as GM’s largest lender to influence and set the parameters for GM to make decisions in areas that did not require Treasury consent,” the TARP inspector general wrote in today’s report.

In a letter accompanying the report, the Treasury said the review makes clear the decision to supplement Delphi pensions “was driven by sound commercial reasons.” Still, the Treasury pointed to “a number of judgments and characterizations” it said are not supported by facts, according to the letter from Timothy Massad, the Treasury’s assistant secretary for financial stability.

“The actions taken brought needed stability to the auto industry and helped save more than a million American jobs,” Massad wrote.

Delphi (DLPH:US), based in Troy, Michigan, held an initial public offering in November 2011 after restructuring in bankruptcy court. The company, once the largest U.S. auto-parts supplier, exited bankruptcy in October 2009.

To contact the reporters on this story: Kasia Klimasinska in Washington at kklimasinska@bloomberg.net; Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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