By on March 12, 2010

After three separate bailouts totaling over $17b, Congress is beginning to wonder if keeping auto-finance giant GMAC alive was worth it. Forbes reports that the Congressional Oversight Panel reckons at least $6.3b of that money could be gone forever, as GMAC flounders towards barely breaking even. And like the rest of the bailouts, the fundamental problem is that the influx of federal cash has allowed GMAC to pretend like it’s not struggling for survival. The panel report [full document in PDF format here] notes [via Automotive News [sub]]

Treasury’s previous and current support is not underpinned by a mature business plan. Although GMAC and Treasury are working to produce a business plan, Treasury has already been supporting GMAC for over a year despite the plan’s absence. Given industry skepticism about GMAC’s path to profitability and the newness of the non-captive financing company model, it is critical that Treasury be given an opportunity to review concrete plans from GMAC as soon as possible.

Sound familiar?

So why didn’t congress just let GMAC fail? Is it, like so many other financial institutions claim to be, too big to fail? Not exactly, as The Atlantic‘s analysis of the report shows. According to the COP report
Treasury has never argued that GMAC itself was systemically important, although in 2008 some Treasury staff members believed that GMAC’s failure at that time – independent of its effects on the domestic automotive industry – could have thrown an already precarious financial system into further disarray during the depths of the financial crisis.
The real issue? Floorplan financing. Had GM and Chrysler not been delicate taxpayer “investments” there would have been a lot less impetus to send billions to GMAC. Strangely, GMAC’s auto-finance business has very nearly returned to profitability, and the COP suggests that GMAC should have had its auto-finance division stripped away from the firm’s other money-losing ventures (and possibly even returned to GM).
Then there are the other issues with GMAC’s bailout: the lack of Treasury conditions, the possible WTO implications, the stress-test failure, the GMAC-unique Capital Assistance Program, and more. As The Atlantic’s Daniel Indiviglio concludes, “for now, it looks like GMAC will continue to enjoy unconditional government support as long as GM does.” Which is problematic in and of itself. As former Car Czar Steve Rattner has graphically illustrated, the GMAC bailout also helps make the GM bailout look better than it might otherwise, when they should in fact be considered one and the same bailout.
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8 Comments on “Congress: The GMAC Bailout Might Have Been A Bad Idea...”


  • avatar
    tced2

    I get the distinct feeling that anything we do for GMAC will benefit Cerebus. We know that Cerebus benefited from the rescue of Chrysler. Cerebus is supposed to be money-wizards and should know how to run a money-operation like GMAC. (The part of GMAC that really bombed was in the mortgage business – surprise!) I never expected them to know how run a manufacturing operation (Chrysler) and they demonstrated their ignorance.

  • avatar
    ClutchCarGo

    God, I love that woman. I wish that she and the COP wielded the same power in policy making as the CBO does with legislation.

    • 0 avatar
      crash sled

      Yeah, she’s the perfect nanny, always got her ducks in a row, and communicates so clearly. I always listen to her, and usually learn something.

      So the feds frantically sent cash to bailout GMAC bank, without strings or oversight, and no stockholder wipeout? I’m shocked… simply shocked. Next thing you know, they’ll be bailing out automakers. No, wait…

  • avatar
    Steven02

    This is probably the best news GM has had in awhile, the recommendation that the auto financing arm go back under GM. I don’t know if that will happen or not, but it would be very beneficial to GM and help out the IPO, as long as it is only the auto financing arm.

    I think everyone knows why GMAC special treatment. They do the floor plan financing for Chrysler and GM. Without this, the dealers couldn’t by the cars they are trying to sell and the rescue of GM and Chrysler would make even less sense.

  • avatar
    tparkit

    “Congress is beginning to wonder if keeping auto-finance giant GMAC alive was worth it.”

    Surely you jest. Financial and other conventional business considerations have no bearing on how Congress spends money to help Washington, or Washington’s friends. For example, Washington now owns the subprime mortgage business, and is busy every day flooding the market with taxpayer-guaranteed mortgages to people who can’t actually afford to buy a home. When in a hole, Washington keeps digging – for all the same reasons that created the hole in the first place. The idea that Congress is deeply disturbed by the causes of the financial meltdown is a myth.

    Further, in today’s DC, $17 billion is a rounding error.

  • avatar
    mtymsi

    There was no choice but to bail out GMAC for both floorplan and retail finance/leasing programs for both GM and Chryco dealers.

    Splitting the auto finance portion out and giving it back to GM is a great idea. I see no need for Cerberus to benefit any further from federal bailout money especially considering the rest of GMAC’s business has no bearing on GM or Chryco dealers/customers. In fact it is that business’s negative performance that threatens the automotive side.

    I wonder what the value of GMAC’s automotive business is relative to the whole company as GM still owns 49% of GMAC so to give them the automotive portion may not be really giving them anything that they don’t already own.

  • avatar
    Telegraph Road

    In 2009 GMAC paid $7.7 million to Sam Ramsey, its chief risk officer who was hired in 2007. Is that pay for performance?

  • avatar
    johnny ro

    If GMAC is barely breaking even then the intervention was successful.

    Agree on cynical interpretation of anything Senate and Congress does, whatsoever.

    “Trained professional liars”.


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