Comments on: GM’s Not Worried About GMAC

By: Skooter

Skooter — Wed, 27 Feb 2008 20:46:12 +0000

GMAC approves all auto loans based on a tiered credit rating. The grades run as follows; S, A, B, C, D and E tiers. Others are simply turned down. Basically, all but D and E approvals qualify for special incentive rates (0% for example). D and E approvals will qualify at a higher rate (8.9%). Each application is scrutinized by money down, equity or non equity in trade, consumer’s pay history, etc. I can’t honestly say that GMAC has become much more selective in purchasing contracts. I can assure you that they will turn down credit criminals absolutely. They used to have what was commonly called “buy a bum” weekends once or twice a year. They no longer hold these events.

By: FINANCEGUY

FINANCEGUY — Wed, 27 Feb 2008 20:43:37 +0000

GMAC has tightened up just a little but the non captives are being more conservative and new sales are really sucking right now.

I'm at a Pontiac/GMC/Buick point and if it not for used cars we would be in a world of hurt as the ratio is 65 used and 15 new as of today and we have sold only 1 new GMC pickup all month and about half of the new are fleet and commercial sales not John Public, its getting rough.

The up side is used vehicles are profitable and new are not. If you are selling new its easier just to lay down and take your $75.00 dollar commision and go back to the used side.I have seen Acadia sales going into holdback and Enclaves at invoice to $500.00 over

By: Rix

Rix — Wed, 27 Feb 2008 20:14:17 +0000

GM has been selling off the crown jewels for cash- GMAC was certainly the crown jewel for many years. The question is how many crummy loans GM has pushed to move stuff off the lots. Making a zero percent loan to someone of questionable credit will create a sale in the short term but a problem in the long term. I agree that the true financials are difficult to pull out but witha corporation of this size there are hidden assets as well as hidden liabilities . Pan Am survived a whole extra decade by selling off it’s hidden assets- routes, gates, planes, catering operations, hotels, etc.

By: timoted

timoted — Wed, 27 Feb 2008 15:48:17 +0000

Robert:

Agreed, They are in trouble but, the $64,000 question is just how bad is it? As I understand it, the reason for the S&P downgrade was due to the fact that ResCap cannot let their net worth fall under $5.4 billion. As of December it still had a net worth of $6 billion. (not much of a cushion there) Additionally, I think Cerebus is speaking with a forked tongue because they have stated that they expect them to be profitable in 2009.

This just adds to the frustration with GM’s financials. It’s becoming increasingly difficult to pin down their financials. Gawd knows I’ve tried. (I’m also not a financial expert) Just when you think they run out of cash, they seem to pull out wads of cash their matress. You have to wonder if they have their own printing press?

By: Robert Farago

Robert Farago — Wed, 27 Feb 2008 15:12:11 +0000

timoted :

I’m no financial expert (just a good listener), but common sense alone tells us that GMAC is in trouble.

There is no way Cerberus’ head honcho would have written GMAC investors a “heads-up, we could be in for a bumpy ride” letter if the finance company wasn’t in deep doo-doo. Nor would Fritz feel compelled to make soothing noises in that direction.

Looking closer, as we’ve said before, if ResCap (the mortgage unit) goes belly-up, its creditors’ lawyers will come knocking on GMAC’s door. If GMAC is on the hook for that catastrophe, they’re going down.

Also, the S&P downgrade makes it harder for GMAC to “sell on” its car loans to the financial markets. Meanwhile, those loans are showing signs of increasing default rates.

The big question here is whether or not GMAC will tighten its credit requirements, drying-up low interest in-house car loans for both GM and Chrysler customers.

Make no mistake: the former GMAC cash cow could soon be quite mad, and I don’t mean angry.

By: timoted

timoted — Wed, 27 Feb 2008 14:44:01 +0000

Is this really relevent? Last time I checked GMACs primary business (failures)were due to residential mortgages not auto financing. Yes, they look like they are in trouble but, the imapct is minimal to GM’s bottom line. It appears that GMAC (with the help of Cerebus)have the capital to ride this one out. Their business model realignment along with the closing up brick and motar and with axing 1000 jobs are good decisions. The outlook on the mortgage side sucks however, the automotive side doesn’t look nearly as dim.