The U.S. government urged General Motors Co. to improve pensions of some Delphi Automotive 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 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 Thursday from 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 Delphi pension issue.
GM was facing default when the government, concerned about the effects on the automaker's supply chain and the U.S. economy, agreed in late 2008 to step in. 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% stake in GM that emerged from bankruptcy in July 2009, according to the report.
As of June 5, the government's share was 13.7%, according to data compiled by Bloomberg.
The department said it had recovered about $35 billion of its GM investment as of July 31.
President George W. Bush agreed to the first installment of U.S. aid. President Barack Obama accelerated the process with Mr. Rattner, co-founder of the private equity firm Quadrangle Group LLC, and Ron Bloom, a former United Steelworkers union adviser and Lazard Ltd. 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, the report showed.
Members of the Treasury's auto team that Mr. 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 the report.
Delphi, based in Troy, Mich., 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.
