The Obama administration should consider a trust for its stake in U.S. auto companies to ensure rigorous independent management and facilitate a way out for taxpayers, a government watchdog found on Wednesday.

The Congressional Oversight Panel for the Troubled Asset Relief Program (TARP), in a report, also affirmed administration and analyst assumptions the government will not likely recoup its entire investment in General Motors Co and Chrysler, which included bankruptcy financing for both.

The panel credited the autos task force, overseen by the White House and the Treasury Department, for thoroughly analyzing problems at GM and Chrysler and acting quickly to address them this spring and summer. But the group said the administration should more carefully explain its decision-making and provide a clearer picture of its actions.

The government holds a 60 percent stake in GM and an 8 percent investment in Chrysler.

Since January, the Treasury has invested more than $50 billion in GM and $14 billion in Chrysler, which has entered into an alliance with Italy's Fiat.

The task force has said it plans to sell the government's shares in both companies, which are now private, in initial public offerings as soon as 2010 for GM and later for Chrysler. Chrysler is majority-owned by a trust fund affiliated with the United Auto Workers.

The administration, which has appointed several board members at both companies, has promised to stay out of management decision-making.

But the panel found that the best way to insulate the taxpayer investment from potential political interference was to place shares in a trust.

The government is in a difficult position to be a powerful shareholder in these companies, panel Chairwoman Elizabeth Warren said in a telephone interview with reporters.

The Treasury has an important role to play. The oversight panel recommends Treasury consider a trust so that someone can actively manage (the shares) and an exit strategy, Warren said.

Warren, a professor at Harvard Law School, said Treasury officials had yet to respond to the recommendation.

The report said there are significant obstacles to GM and Chrysler ever achieving the level of profitability that would permit the return of the entire taxpayer investment.

It is also unclear whether GM and Chrysler will have to borrow from capital markets to facilitate their turnarounds, and analysts have said their performance and market value would have to more than exceed heights not seen for several years.

GM said in statement that it is confident it will repay the taxpayer because it has reduced debt, has a stronger balance sheet, and touts a competitive product mix.

The panel also said the decision to intervene raised questions about Treasury's objectives, which have not been adequately explained.

The group recommended Treasury provide the legal analysis for supporting taxpayer investment as well as embrace more transparency and take exceptional care to explain its decision-making.

The five-member panel issues monthly reports on TARP funding issues. Apart from Warren, other members include former Securities and Exchange Commission Chairman Paul Atkins, U.S. Representative Jeb Hensarling of Texas, Richard Neiman, superintendent of banks for the state of New York, and Damon Silvers, associate general counsel of the AFL-CIO.

Warren and Neiman voted in favor of the findings on the auto bailout, while Hensarling dissented. Atkins, who joined the panel too late to fully participate in the review, and Silvers, who recused himself because of his position as a labor leader, did not vote.

(Reporting by John Crawley; Editing by Gary Hill)