By on May 11, 2010

Three years after spinning off GMAC, with which it pioneered captive auto financing, General Motors may be considering a return to in-house finance. Bloomberg BusinessWeek reports that:

GM may buy back the GMAC business, start a new finance unit or form a partnership with banks and other lenders, said the people, who asked not to be identified because details are private. Chief Executive Officer Ed Whitacre wants to form an in-house lender before selling shares in GM as soon as the fourth quarter, one person said.

GMAC has received $17.2b in TARP aid, but recently announced a$172m Q1 profit despite concern over its bailout in congress. GM’s previous experience with in-house lending has been decidedly mixed: though GMAC was long a cash-cow for the automaker, the easy financing cashflow is said to have enabled a culture of apathy towards product development. When the credit market collapsed, GMAC went down like a ton of bricks… and would have taken GM (even further) down with it, had Rick Wagoner not spun it off and sold it to keep the lights on a little longer. In the short term, a captive finance unit might help a GM IPO, but the potential for falling back into old bad habits can’t be ignored.

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17 Comments on “GM Eying Return To Captive Finance?...”


  • avatar

    all the kings horses…

  • avatar
    dwford

    Sad to say, but financing is where the real money is to be made in the auto industry.

  • avatar
    boyphenom666

    There is a little bit of an error in Edward’s vignette. Had GM retained ownership of GMAC, it would have been no more likely to take down the rest of GM than Ford Motor Credit. GMAC failed because it was heavily into home mortgage financing. In fact, Jerry York had a plan that would have offloaded the mortgage financing side to Cerberus, keeping the auto financing side of GMAC in-house. Of course, hindsight is 20/20 but it looks like something else Jerry York got right.

  • avatar
    Robert Schwartz

    And, with whose money?

  • avatar
    don1967

    GMAC was once seen as the jewel in GM’s thorny crown from an investor’s perspective. If the IPO delusion mentioned earlier today on TTAC is serious, this would likely be a critical step in building perceived value.

  • avatar
    Telegraph Road

    I’m sure Chrysler will love being dependent on GM for financing.

  • avatar
    mythicalprogrammer

    Heh, they’ll bounce back like Chrysler and Carter, and we got some money off of that deal too. The only question is if they’re going to take their eye off the ball after everything is dandy (that’s a jab at you Chrysler).

  • avatar
    NulloModo

    Pretty much every other major automaker has a finance arm, Ford, Toyota, and Honda all do, and most medium and small automakers have one as well.

    GMAC should have never gotten into mortgages, and shouldn’t now be getting into consumer banking. The p

  • avatar
    bnolt

    Ditech, ResCap, Ally Bank….What will they do when our wallets are finally empty? I’ll be sure to consider this when contemplating my next purchase. OTOH, it *is* a Consumer Digest Best Buy.

  • avatar
    tparkit

    “General Motors may be considering a return to in-house finance”

    The conventional business aspect is a sideshow. Let me help with this. GMAC is a holding bank, with too-big-to-fail access to Washington’s river of bailout money for the financial industry. The purpose of GM buying GMAC back would be to gain access to this vast slush. That money would flow everywhere and anywhere within Government Motors – including union pensions and beneifts. One direct example:

    - GM offers financing to people who can’t actually afford a car; an important competitive advantage.
    - GMAC holds the paper.
    - the customers default in droves.
    - the government makes bank GMAC whole on the losses, Fannie & Freddie-style… or any party GMAC re-sells the paper to (AIB-style), which will greatly lower GM’s cost of capital (another competitive advantage).

    • 0 avatar
      Steven02

      I am not sure where you are going with this. GM buying back GMAC auto financing doesn’t necessarily come with a bunch of money. Part of the agreement for GMAC becoming a holding bank was that GM sell of a portion of its stake. So, GM can’t buy back all of GMAC, and the portion it might get doesn’t necessarily come with any money. The example you provide simply doesn’t make sense either. Most auto manufactures today offer rates internally to people who can’t afford cars. There is no competitive advantage there at all.

      But the financing part for GM is already at a disadvantage. They need an in house financing arm to make it easier to get people who can afford cars into cars. I had a coworker who couldn’t get a car because the rates at GM were too high (10% or more). He got a Ford @ 0% for 3 years. Ford doesn’t have to buy down the rate to a 3rd party like GM would have to.

      Lastly, I don’t think GMAC will be getting another bailout. It would take a lot more than people defaulting on cars loans to make that happen. Right now, I can’t think of the scenario that would have to happen. I do know that it would have to be far worse than the crap economy that we have and went through that ended with the current bailouts.

  • avatar
    cdotson

    I fail to see why a return to captive auto finance necessarily signals a tendency to starving product development. While I do not disagree that in the recent past GM’s product development was mediocre at best and finance was the cash cow, I find that situation arising more out of the intellectual laziness and complacency that ran rampant in the GM culture at the time.

    The fact that top brass within GM has been shaken up every couple months since Tex came in says that at the very least something has changed within the culture, and the shakeups speak to the fact that someone at the top wasn’t complacent enough to handle the way things were going. The presence of captive finance does not in itself indicate poor product development is in the works. I’m sure most companies wouldn’t mind having the finance cash flow in addition to operating profits on the manufactured goods they finance.

  • avatar
    John Horner

    All of GM’s competitors of note (Chrysler being the lone exception) have in house finance arms. A properly managed in house finance unit is one of the elements any successful automaker needs to have in the long run.

  • avatar
    mtypex

    Susan Docherty for GMAC chief!

  • avatar
    Steven02

    This will be a good move for GM. Making profits on the financing side will greatly help the IPO and profit potential.


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