WASHINGTON -- The Treasury Department needs a "concrete plan" to unwind the 2009 bailout of Ally Financial Inc., the former auto-finance arm of General Motors, an administration watchdog says in a new report.
Taxpayers still own 74 percent of Ally, which owes $14.6 billion for the infusion of public dollars that enabled the former GMAC Inc. to avoid bankruptcy.
The auto-finance company, spun off from GM in 2006, ran into trouble as the result of a foray into home mortgage lending under its Residential Capital LLC unit.
Those mortgages are still "a millstone around taxpayers' necks," says Christy Romero, the special inspector general for the Troubled Assets Relief Program, though she insists the Treasury Department needs to unload the government's shares in Ally.
"Treasury and federal banking regulators must now develop a path to repay taxpayers while leaving Ally, as well as GM and the auto industry, in a position of strength going forward," Romero said in a statement today.
New York-based Residential Capital filed for bankruptcy protection in May 2012 with plans to sell major assets and resolve legal claims related to the mortgage loans.
The $1.5 billion sale of ResCap's main loan portfolio to Berkshire Hathaway Inc. is expected to close on Jan. 31.
The Treasury Department also holds 19 percent of stock in GM. The department announced a plan in December to sell those shares over the next 12 to 15 months.
The White House Office of Management and Budget has estimated that taxpayers will lose $5.5 billion from the federal bailout of GMAC.
With the Obama administration trying to extricate itself from the auto industry, the government's shares in Ally could hit the market next.
Ally filed for an initial public offering in 2011 that would have allowed the Treasury Department to sell some of the government's shares, but the IPO did not occur. Officials have also discussed a private sale of the stock, but they have not settled on a plan.
"Ally is highly confident in its ability to repay the remaining U.S. Treasury investment in full," spokeswoman Gina Proia said today. "We have taken a number of steps in 2012 designed to best position the company to exit TARP, and there has been significant progress thus far."
Treasury officials are using care in restructuring and unwinding the government's oversight of Ally because of its key role in U.S. car and truck sales.
The company loans money to about 6 percent of U.S. vehicle buyers. That makes it the second largest lender after Wells Fargo, which passed Ally for the market share lead during the third quarter of 2012, according to a December analysis by Experian Information Solutions and cited in Romero's report.
Ally also provides the majority of floorplan financing to GM and Chrysler dealers.
GM, after several years of profitability, has started shoring up its auto lending business. It acquired AmeriCredit in 2010 to help bolster its GM Financial unit.
In November, GM agreed to pay $4.2 billion for Ally's international auto-finance operations, which provides cash that Ally could use to buy back its shares from the Treasury Department.
