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U.S. expects equity payback

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U.S. expects equity payback

Officials look for GM, Chrysler to profit

BY JUSTIN HYDE

FREE PRESS WASHINGTON STAFF

WASHINGTON -- The Obama administration expects General Motors and Chrysler to generate enough profits for the government to unwind its equity stakes in both automakers, according to a new federal report.

But if the companies should unexpectedly falter, the government would consider all options for shedding its stakes -- including liquidation.

"In the event that the companies do not return to profitability in a reasonable time frame, Treasury officials said that they will consider all commercial options for disposing of Treasury's equity, including forcing the companies into liquidation," the General Accounting Office report said.

The comments came in a study by the GAO of the pension funds at GM and Chrysler, which rank among the largest private pension plans in the nation.

GAO said neither automaker expected to make pension contributions immediately, but that they could face large shortfalls in a few years.

The pensions have not made any data about their health public in more than a year.

The GAO also warned that the U.S. Treasury needed to set clearer standards for measuring its investments in the auto industry to avoid conflicts of interest.

GM is to release its first financial resultstoday since emerging from bankruptcy last year, while Chrysler is expected to reveal some financial data on April 21 as part of an investor briefing by Fiat.

GM officials have said the company could be profitable this year, while Chrysler CEO Sergio Marchionne said last week that the company would break even in 2010.

President Barack Obama has said he wants to sell the 60.1% stake in GM and the 9.9% stake in Chrysler owned by the federal government as soon as possible. The report said Treasury officials overseeing those stakes expect GM and Chrysler's profits "will be able to attract sufficient investor interest for Treasury to sell its equity."

The U.S. government has poured $81 billion into rescuing GM, Chrysler, finance company GMAC and suppliers.

Steven Rattner, the former head of Obama's auto industry task force, has said the administration should recoup most of the money spent on the automakers.

In its look at pensions, GAO said their health would rely on the recovery in the auto industry and the U.S. economy.

It did warn that the pensions at GM and Chrysler, with a combined 922,000 people drawing benefits and $104 billion in assets, dwarf the Pension Guaranty Benefit Corp., the federal agency that takes over failed pension plans.

GM said last year it expects to need to infuse its pension plans with $12.3 billion starting in 2013. Chrysler told GAO it would need to put in $3.4 billion between 2009 and 2014, with most of the funds required starting in 2013 as well.

GM spokesman Greg Martin said the company continues to believe its pension plans are adequately funded to meet current obligations.

link:

http://www.freep.com/article/20100407/BUSINESS01/4070366/1210/business01/U.S.-expects-equity-payback

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