GMAC is a bank. It used to be a lender to both the car and mortgage industries. And not a particularly good one. Or, maybe, too good. Or just right if you were a sub-prime borrower looking for quick cash. GM owned all of GMAC, which was a cash cow. Right until it wasn’t. Just before the now-infamous sub-prime meltdown, GM was trying to cover-up its cash burn. So CEO Rick Wagoner sold a controlling share in GMAC to Cerberus, the same people who bought Chrysler. Flash forward to the waning hours of 2008. GMAC was about to fall into bankruptcy, dragging down Cerberus, Chrysler, GM and that funny-looking guy who used to be your landlord. So Uncle Sam stepped in—and how. The Fed relaxed its banking rules so that GMAC could become a bank, and, thus, hoover-up $6 billion worth of bailout bucks. After that, there’s some stuff about ending leasing, not lending money to car buyers, driving Chrysler and GM dealerships into C11, lending money to car buyers, etc. Up to speed? OK. So here’s the New Deal . . .
To facilitate its plans to turn Chrysler into a union co-op, the Presidential Task Force on Automobiles (PTFOA) wants to unload Chrysler Financial on someone. But who in their right mind would take ownership of Chrysler Financial NOW, when the automaker it supports is about to be turned into a union co-op (see: above) and married (con fucile) to an ailing Italian automaker? In the middle of a contracting new car market? That’s abandoning Chrysler in droves.
Actually, it’s worse than that.
Chrysler Financial is running out of money and has had to rely on $1.5 billion in loans from the federal government. The company also has a line of credit from several major banks, but the interest rate is so high that it cannot use the money profitably.
Furthermore, if Chrysler files for bankruptcy, a prospect that many officials say is highly likely this week, the banks can pull their lines of credit from Chrysler Financial.
Bottom line: no one wants this turkey, obviously. Except anyone who wants Chrysler to survive as a going concern, in one form or another. (Don’t look at me.) Make no mistake: if Chrysler Financial flames out, it will take the automaker down with it. Well, unless Uncle Sam comes to the rescue again.
Chrysler Financial afloat still remains critical to the company’s future, some industry and government officials said. A collapse of the financing arm could take down many dealers, which rely on short-term loans to buy the cars that sit on their lots. Chrysler sales could also grind to a halt as consumers struggle to get car loans. In the present environment, it would be difficult for dealers and customers to get financing from banks.
Luckily, the PTFOA has an idea. A wonderful, awful idea! Sell Chrysler Financial to GMAC. Hey, that was Cerberus’ plan all along, right? Combine GMAC with Chrysler Financial and strip and flip the rest? So, let’s do it! I said, let’s do it. And don’t worry: we got money. Or, more specifically, you got money. Which we gave you.
As Mr. Marley used to sing, four o’clock, roadblock. Now that GMAC is a bank, it falls under the purview of the Federal Deposit Insurance Corporation (FDIC), whose sworn task is to keep banks from doing really stupid things like . . . spending money it doesn’t have buying Chrysler FInancial (again ALSO owned by Cerberus). And the Fed, so forgiving and understanding back in late ’08, aren’t playing ball on this one.
Treasury officials have not yet obtained the agreement of the Federal Deposit Insurance Corp. and the Federal Reserve, sources said. The FDIC, created to backstop the banking industry, is balking out of concern that its resources would be drained in support of an auto manufacturer. And the Fed, which regulates banks, would need to grant a waiver from a long-standing rule that separates banking and commerce.
House of cards anyone? Or should I simply say, let the political arm twisting begin! I mean, continue. And I’m glad that PTFOA head Steve Rattner is a former investment banker, ’cause this one sounds like a real bitch to sew together.
Closing a merger between GMAC and Chrysler Financial would require an infusion of new bailout money from the Treasury. The company also needs access to an FDIC program that allows companies to borrow money at lower interest rates, sources said. And administration officials want the Fed to relax a rule that would restrict the amount of loans that the enlarged GMAC could make to Chrysler’s customers and dealers because both firms are owned in part by the same company, Cerberus Capital Management.
Not to be too much of a downer here, but this clusterfuck illustrates the fact that no matter how this shakes out, Detroit’s federal bailout is doomed to an extremely expensive failure. On our dime. Sigh. Chapter 7 would have been such a clean resolution . . . .