GM, GMAC Go Their Own Ways
In their latest report, the Congressional Oversight Panel suggested that GM’s formerly captive finance arm GMAC shouldn’t have been split from the automaker it still supports. If this led you to believe that GM would take the troubled finance firm back under its corporate wing, you have another thought coming. The WSJ [sub] reports that
The idea appealed to GM, in part because auto maker would have more control over lending practices. GMAC’s move in 2008 to dramatically restrict leasing amid the U.S. financial crisis helped trigger the spiral that sent GM into bankruptcy the last year… But taking over GMAC would have many complications. GM sold a majority stake in GMAC in 2006 as a way to buck up the auto maker’s credit standing and its access to capital. As it turned out, GM still remains largely cut off from the markets.
Where does this leave GMAC? In big trouble and and at the mercy of the taxpayers, apparently. The WSJ [sub] points out that GMAC’s ResCap unit remains the major stumbling block to a successful IPO for the firm. Other trouble points: GMAC’s decision to launch an online bank, called Ally. According to the CAP report, online banks “have not had a history of success.” Also, the possibility that GM could create a new captive-finance arm. If that happens, and since GMAC is struggling and GM won’t take it back it seems likely, GMAC’s consumer and floorplan financing could be stuck in the subprime ghetto, servicing such marginal automakers as Chrysler and Saab. That’s more bad news for the worst beneficiary of the Detroit bailout, and by extension, bad news for taxpayers.
More by Edward Niedermeyer
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Is that Billy Mumy in the pic?
"ResCap" was their major undoing - mortgage financing - they went down the whole sub-prime thing and really hurt the company. And GM really was fortunate to have spun off GMAC before the sub-prime mortgages really died. The auto financing business is bad (especially when the auto business is bad) but access to credit is the lifeblood of this business. The "Ally Bank" thing was done so that GMAC could benefit from the TARP - which extended "help" to banks. I find it amusing that when I read the fine print on Chrysler advertising - the GMAC name is there. Remember, Cerebus is at the root of GMAC and anything which helps GMAC helps Cerebus. How ironic that money-wizards like Cerebus are tangled up in the mess called GMAC. At least they extricated themselves from auto design and manufacturing (Chrysler).
I can't understand why GM didn't just sell off the real estate arm to Cerberus when Rescap was still going good. Since the real estate bust, I can't understand why the geniuses at Cerberus didn't spin off Rescap at a huge discount so it could attract bargain-hunter investors, and return GMAC to its auto roots. Had Cerberus done the latter pre-bankruptcy, they could have combined GMAC with Chrysler Financial and branched out into "non-denominational" used car financing.
The only houses I have seen in my little town with "foreclosure" signs in front of them are being listed by... GMAC Real Estate. My assumption is that the mortgages were originally held by GMAC.