You’re wrong. The original title was GMAC May File for Bankruptcy Tomorrow.

I changed it at the author’s request.

My (uneducated!) guess is that if GM has the SEC hoodwinked it a good bet the public has no idea what their financials really are.

First, look at operations. The business is losing revenue. You can expect it to lose more as car sales fall, home sales stay low and delinquencies rise. So we’re off to a bad start.

Next, consider the loss reserves. They are most likely inadequate. Much of what sits on GMAC’s books are mortgages, not just car loans. It wouldn’t be a stretch to double the existing loss reserve, and you can bet that when GMAC gets a real audit at the end of the year (these quarterly statements are not audited) that the accountants will pump up the loss reserve amount.

Let’s also note that over $2 billion in GMAC’s assets is a note owed to it by GM. I wouldn’t count on collecting that, if I were you.

The problem being addressed in the article is that GMAC now has no sources of new lending capital. That has been reported elsewhere in the media and makes perfect sense, in light of the credit crunch and the company’s poor rating.

The company currently has a B- rating from S&P. Even worse, it has been widely reported that this rating is likely to be downgraded further.

A quick look suggests that the current yield on GMAC corporate bonds is in the 11% range. Yes, Virginia, that is a high interest rate, one that reflects the high likelihood of default. With a ratings downgrade, that rate will probably increase again. In a market that is running scared, you have to wonder whether there would even be enough buyers at any price if GMAC sold new bonds.

So it’s no surprise that GMAC has little to loan out — they can’t borrow anything, nor can they charge as much as they’d have to pay in interest to their corporate lenders. They can only loan just enough that they can from sources such as the Fed funds window, net operating cash flows and bank deposits.

It’s no wonder that they’ve raised their minimum FICO requirement — they don’t have much money to lend out in the first place, and they want to minimize the extent to which their loss reserve will have to be increased.

A lender that can’t raise capital is in very deep something or another. That capital is what allows them to stay in business. All of the recent news about the liquidity should make it clear to everyone now that lenders that can’t get funds are going to fail.

Unfortunately, a lot of GM’s cash on hand really comes from bank deposits. That means much of the the current cash that GMAC holds is effectively insured by the FDIC. If GMAC hits a wall, the government is going to have play clean up.

That’s why John Horner’s comment above makes sense, too. The only way for the government to avoid paying full price for this collapsing company is to find a buyer for it.

This is no time for cheerleading. While I wouldn’t expect a sale and bankruptcy today, this may well happen sooner than later. The government likes to do this stuff over the weekend, so read your headlines on late Sunday nights if you want to get a jump on the week.

As stated in your link, assets of $227B versus liabilities of $215B equals a $12B net worth.

And from the authors’ report:

Bottom line: GMAC now has $173b of debt against $140b of income producing assets.

So where’s the validation of that debt number? Where did the author get that number?

While the out may be the “incoming producing assets” and what is considered as incoming producing, there is a significant change in the stated debt between the actual data and the article.

That is a $45 billion dollar net worth swing that didn’t just fly under the radar of all the other news wire sources in the past quarter. Come on folks, wouldn’t this story be right behind AIG on the news wires?

To take such a hit on the asset side of the balance sheet then you are talking about $142 BILLION in income producing assets that would have to have a default rate of what, around 30%? There isn’t a report of 30% delinquency on any finance company today (yet?).

So what’s the source of the data?

Look at the data folks. There is $26 billion in cash and equivalents and investment securities. There are other true values on the assets side. Actaul loan losses would be so high that almost half of those servicable loans would have to be delinquent.

Bankruptcy means that you can’t pay and your assets are worthless. Creditors don’t force you into bankruptcy when you have good servicable loans. And nothing out there shows that much of a dollar loss on the loan portfolio.

Remember that many of those loans are at GM subvented retail rates such as 0% on high quality customers.

I’m not saying the economic picture is pretty in any industry lately, but this one has many stretches.

None of that is a secret.

http://www.sec.gov/Archives/edgar/data/40729/000095013708010406/k34241e10vq.htm

As someone mentioned, the author doesn’t cite a credible reference and in review – another author on this website said the same thing a few months back. I guess if you predict the future repeatedly that you might look like a genius when you get one right.

Obtaining the information on the assets and liabilities of a PUBLICLY traded company is easy via the SEC. But how does the author know the exact assets and liabilities of a non-traded company such as GMAC?

I’m sure glad you guys informed us of this pending gloom (again) and that you have so many hits on your articles compared to other business data sources like CNN, Bloomberg, or WSJ.

It’s probably not quite the same situation. In the case of the banks, their failure would force the FDIC to payout on all of the deposit insurance. By absorbing some of the losses, the FDIC should be reducing its costs because those losses are probably far less than what it would cost to cover the insured deposits.

There is a GMAC Bank, but I don’t think that it’s very big. Hopefully, the assets could be sold off to someone else, with the liabilities left in the hollowed-out company that is then put into bankruptcy.

I don’t know how it’s structured, but hopefully, the bank component is solvent and could be neatly separated from the lending side. The office space landlords, computer leasing guys, office supply vendors and the rest will be stuck fighting over the little pieces that remain.

In recent deals the shareholders have lost everything (or nearly so) they had invested plus the FDIC has been picking up bad debts held by the defunct banks.

13 US banks have gone under so far this year per:

http://www.time.com/time/business/article/0,8599,1849481,00.html?imw=Y

That is exactly what I’d bet my money on, except the losses will go to the shareholders, which in this case means GM and Cerberus. GM stock will take a hit as a result.

Strange times.

Since then I have avoided buying anything with “GM” associated with it, including its vehicles. It is not nice to cheat your customers as some have a LONG memory.

Just Google “gmac class action lawsuit” for just a small portion of GMAC’s recent treatment of its customers. I don’t feel sorry for them one bit.

Basically the situation is so bad that the silver lining has its very own dark cloud.

That would not be practical however,depending on state franchise laws you could see many of these vehicles go on GMAC’s Smartauction a phenomenal website (and very profitable by the way) and opened to non affiliated licensed used car dealerships or possibly individuals. The factory has really tightened up with what they will buy back versus in the past when they were partnered with GMAC they offered some flexibility which in itself will lend to this glut.

Is there anything that prevents the used car department of a new car dealer from bidding on these? Aren’t a large portion of used cars sold by new car franchises?

Used car traffic has also slowed dramatically as consumers of all kinds tighten their belts. The shoppers we see frequently see are cut off from any kind of credit due to existing negative equity and impaired credit scores.

It’s a double whammy in that lenders are not only lending to fewer potential customers, but also lending less on the deals they are willing to finance.

Smart lending, bad for business regardless of what you sell.

I’m guessing GMs remaining dealers will have a hard time selling anything when used car dealers are picking up brand new cars at auction for 20% of dealer invoice.

Nice time to be a used car dealer though.

Vicious cycle guys; bankruptcy and a bailout or death. Only two realistic options at this point.

Let’s merge with Chrysler, in exchange they won’t cut our cash off!

It’s like Hitler at the end of WW2; increasingly fanciful plans to turn back events, desperate ploys and plots to evade the inevitable. The only choice between death now and postponing it a few more days.