The Truth About Cars » GMAC The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Thu, 17 Jul 2014 19:25:56 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » GMAC Chevrolet Offers 14.7% APR Financing To “Well Qualified” Corvette Buyers Fri, 27 Jun 2014 10:40:41 +0000 download

While perusing Chevy’s website to see if there is any color of the 2014 Corvette that actually makes the car look halfway decent, I came across the financing offer pictured above. And, no, I did not enter any personal info that would lead GM’s captive Ally Financial (or whoever the hell GMAC is now) to deem me only eligible for such a high interest rate. Just what is going on here?

A quick look at other Chevrolet vehicles on the site show financing offers of 3.9% to 4.9% APR. These rates may be subvented, or bought down by the manufacturer to help move slow-selling iron, though with car loan rates being under 2.0% by independent banks in much of the US, one has to wonder how much Ally is being charged for their money. Even if they are paying a sky-high 4.0%, it is a mystery why they would advertise a 14.7% loan on the Stingray, rather than, say 6.0% or 7.0%. Ally and the dealers would make a fortune on this 72-month loan but I don’t think they will get any takers because unlike buying the Corvette itself, with dealer price gouging running rampant, consumers actually have many choices when it comes to financing.

I can only conclude that either this offer is in error (maybe even their marketing folks are slammed by the recall crisis) or Ally Financial is simply not interested in $50,000+ loans.

What say you?


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General Motors to Divest Remaining Ownership of Ally Financial Thu, 05 Dec 2013 12:53:39 +0000 Renaissance Center

Ally Financial, the bank holding company formerly known as GMAC, is still a major part of the United States federal government investment portfolio in the five years since it was bailed out at the start of the Great Recession. Yet, it may be able to soon divest its ownership in part due to General Motors selling their remaining shares.

GM announced Wednesday that they would sell off their remaining 132,000 shares — or 8.5 percent of the total shares available — of the finance company through a private placement. The action would clear the way for Ally to begin final preparations for their long-awaited IPO to the investing public. In turn, the federal government could sell part if not all of their ownership, currently holding at 64 percent.

When the IPO will be offered is still unknown, though both GM and Ally are hoping rising interest in the latter by investors will light the path toward complete freedom from government ownership. In the meantime, GM will net $900 million from the private placement.

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97 Months And Running Mon, 15 Apr 2013 11:00:14 +0000

8 years to pay off a car? A report by the Wall Street Journal claims that in Q4 of 2012, the average car loan stretched out to 65 months, or just over 5 years. Loan terms were being stretched out over increasingly longer terms too, with credit firm Experian reporting that nearly 1 in 5 car loans had terms between 73 and 84 months long, with some stretching for as long as 97 months.

So why stretch out loans for such a long period of time? Per the WSJ

“[the] 75-month loan illustrates two important trends rippling through the U.S. auto industry. Rising new-car prices and competition among lenders to attract borrowers is pushing loans to lengthier terms. In part, banks see the longer terms as a way to attract buyers, by keeping monthly payments under $500 a month.”

Among the culprits cited by the WSJ are increased credit, low delinquincy rates on car loans and, according to banks, minimal downside as far as auto lending goes.

Melinda Zabritski, director of automotive credit for Experian, said the greater availability of credit is helping the surge in new car sales. The percentage of subprime loans isn’t far below the record level of 2007, and the length of loans is growing, she said…With increased competition between the banks for business, offering loans longer than 72 months, or subprime loans is one way to compete for new borrowers. “Consumers tend to be monthly payment buyers. One way that lenders compete is to offer longer term loans,” Ms. Zabritski said.

Interestingly, Zabritski claims that buyers qualifying for the longer loans tend to be those with good credit scores buying more expensive vehicles. But what nobody answered is “where is all this credit coming from?” As per our last report on auto lending, the appetite for auto back securities is enormous, and Wall Street cannot get enough of them. Sub-prime loans in particular are a favorite. At this point, nobody, not even Zabritski, is denying that the expansion of credit for automobile buyers is driving new car sales. The question is, what happens when the music stops?

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How A New Generation Of Sub-Prime Auto Financing Could Cause Another Catastrophe Fri, 05 Apr 2013 14:40:53 +0000

March was the 5th straight month of a SAAR above 15 million vehicles.  Industry analysts have explained the strength of the market in a number of ways. The need to replace older vehicles is one (new car sales were hit hard during the recession as consumers held on to their vehicles for longer. This also caused used car prices to skyrocket, something TTAC has been documenting), while others have cited increasing fleet demand, and the desire to replace vehicles damaged in Hurricane Sandy.

But one factor that is just starting to get attention outside of TTAC is sub-prime financing. Sub-prime lending, which involves giving high-interest loans to customers with poor credit scores, is driving the SAAR in a big way, by letting buyers with poor credit purchase new cars. In turn, the sub-prime bubble is being driven by Wall Street, whose clients cannot get enough of financial instruments backed by sub-prime auto loans.

On the surface, it seems unbelievable. Unemployment is at 7.7 percent, and even higher according to some pundits. Taxes are going up, wages are stagnant, the economy hasn’t really recovered according to many. And yet auto sales – for many people, the second biggest purchase they’ll ever make – are on a hot streak, rebounding back close to pre-recession levels.

Sub-prime loans, defined as a loan given to anyone with a credit score under 660, are now bigger than ever. In Q2 of 2012, new car sub-prime loans accounted for a quarter of of all loans, while 56 percent of used car loans went to sub-prime buyers.There’s even a new category called “deep subprime”, for auto loans issued to buyers with credit scores below 600. These loans account for nearly 11 percent of all car loans, despite the fact that a 600 credit score is considered abysmal.

A recent Reuters report detailed the usual routine of a sub-prime loan; a borrower with a poor credit rating is approved for a loan, often carrying an exorbitant interest rate hovering around 20 percent. In the Reuters story, the buyer agreed to finance a $10,000 2007 Suzuki at 21.5% interest using a shotgun (valued at $700) as his down payment. The buyer, stretched thin by various debts, including the car loan, ended up declaring bankruptcy. Another report by the Los Angeles Times outlined how unscrupulous used car dealers would issue sub-prime loans, knowing that their customers would default, wait for them to default, and then repossess the car and re-sell it, repeating this process over and over again.

In addition to the decreasing credit scores of car buyers (The Motley Fool reports that the sub-prime buyer’s average credit score dropped 9 points in 2012 compared to 2011), monthly payments have stayed static, due to 77 percent of loans lasting for longer than 5 years. This tactic allows buyers to manage the same monthly payment but borrow a greater amount, and thus able to afford a more expensive car without feeling more of a hit to their pocketbook.

Extending loans to unqualified buyers wantonly would seem like a poor business practice on the surface, but the demand for sub-prime loans isn’t just coming from consumers. Wall Street is also playing an enormous part in the practice. According to the New York Times, growth in securities backed by auto loans has been enormous. In 2008, investors bought $2.17 billion in auto loan securities. In 2011, that figure exploded to $11.7 billion.

The rationale behind the massive growth in auto loan securities can be linked to the Federal Reserve’s policy of Quantitative Easing. QE, which involves buying bonds and Treasury Secuities en masse, has injected liquidity into the market and kept interest rates artificially low. This has allowed banks to charge near-record low interest rates on all car loans, while also reducing yields on traditionally safer investments like bonds. Sub-prime car loans, packaged and sold into securities, are seen as riskier, albeit with the potential for greater return. And with hedge funds and institutional clients looking for a greater return on their money, auto loan securities have become the instrument of choice for a number of entities – even Google is investing in these instruments, after being frustrated by low returns elsewhere.

And just like the 2008 mortgage crisis, these sub-prime auto loans are being packaged and sold as AAA rated bonds. As the Los Angeles Times reports, the number of loans packaged and sold as a securities is in the tens of thousands. The thinking goes that even if some of the loans are delinquent, there are plenty more that will make the security safe. And like sub-prime mortgages, the securitized auto loans are being divided up into tranches, with demand for the riskiest tranches being strongest.

Unfortunately for American consumers, the biggest players in sub-prime auto financing have significant ties to domestic auto makers. A report by Reuters names Santander, which is Chrysler’s auto financing outlet, and GM Financial as the two largest sub-prime auto lenders in the United States. Santander alone accounted for 53 percent of all sub-prime financing – and Santander’s expertise in the field was apparently one reason that Chrysler decided to partner with the Spanish bank.

While both Chrysler and GM use Ally Financial for their prime loans (which are issued to qualified buyers), GM has its own seperate sub-prime arm, known as GM Financial. In Q1 2012, some 93 percent of GM Financial’s loans were to sub-prime buyers, up from 87 percent in Q4 2010. During that same period, loans to the least qualified buyers – those with FICO scores under 540, were up 79 percent. GM Financial’s delinquent loans also rose by some $200 million in 2012, to $933 million – higher than Ford Toyota and Honda’s combined delinquencies.

The situation in auto-loan securities has eerie shades of the 2008 mortgage crisis across the board: the eager distribution of not just sub-prime loans, but “deep sub-prime” loans to borrowers with the worst credit ratings. The securitization of auto loans and the hunger for the riskiest tranches of these securities. And the “AAA” rating of even the most egregiously crappy securities.

In light of these factors, it’s worth reflecting on how much of an influence sub-prime auto loan securitization is having on the lofty heights being reached by the new car market. The last time America experienced the bursting of an asset bubble, auto makers were stuck with excess capacity and significant overcapacity. Combined with a sudden contraction in consumer credit, these factors nearly brought America’s auto makers to their knees.

The current situation is not directly comparable to the mortgage crisis of 2008, but bares too many parallels for us to ignore. It would be the ultimate irony if another systemic crisis occurred, due to securitizied auto loans. They very instruments used to by auto makers to help spur sales growth will have ended up crippling them yet again.


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The Artist Formerly Known As GMAC Comes Back To Mami – Partially Thu, 22 Nov 2012 15:36:01 +0000

Bailed-out GM agreed to pay about $4.2 billion for the European and Latin American operations of likewise bailed-out Ally Financial, formerly known as GMAC.

Ally, 74 percent owned by the U.S. government, did put the international operations up for sale to raise money for the repayment of bailout funds. The money now comes from GM.

The deal is expected to add $300 million to $400 million to GM Financial’s annual earnings before taxes.

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GM’s Floorplan Banker Could Take Mortgage Arm Bankrupt Tue, 08 May 2012 10:35:47 +0000

There is new trouble brewing in an important part of GM’s business: Ally, the former GMAC. Nearly 75 percent of the credit that GM dealers in the United States use to finance their inventories is from Ally, says a Reuters report. The report also says that Residential Capital (ResCap) – Ally’s mortgage servicing and lending unit – is again on the verge of being put into bankruptcy.

Ally still owes the U.S. Treasury Department about $12 billion. GM and Chrysler, two key sources of customers, are increasingly reluctant to steer business to it, says Reuters. This puts Ally deeper into trouble.

ResCap faces litigation over underwriting standards. The suits could bring a new set of liabilities that threaten to take Ally down with it unless it is somehow separated. According to Reuters, ResCap is seriously considering filing for bankruptcy by May 14 when it must repay a portion of its debt.


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GM’s AmeriCredit Deal: Awaiting Approval Fri, 23 Jul 2010 17:59:44 +0000

Now that GM’s acquisition of the subprime lender AmeriCredit has had 24 hours to sink in, howls of protest are starting to surface. The charge is being led by Senator Chuck Grassley, who has requested a review of the deal from the SIGTARP, saying

If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first.  After GM’s experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans.

And though Grassley’s criticism could be read as mere partisan gamesmanship from a leader of “the party of no,” there are a number of very good reasons for opposing the deal.

A look around the blogosphere reveals that opposition to the AmeriCredit deal largely falls into three categories: one camp, led by Grassley, believes that GM is burning cash on the deal that should be going to taxpayers, another worry is that the deal is an excuse for GM to fall back into bad habits, while a third objection concerns the deal’s effect on GM’s former captive lender GMAC (now known as Ally Financial). Each of these criticisms has its own valid points, and together they form a solid basis for opposition to the deal for government overseers, taxpaying citizens and potential IPO investors alike.

Grassley, who was a leading critic of GM’s “payback” ads frames his criticism of the deal by holding up full taxpayer payback as the deal’s opportunity cost. Though Grassley is on the right track with his criticism of GM’s profligate spending, $3.5b would hardly make a dent in GM’s obligations to the taxpayer. The Treasury’s stake in GM currently stands at about $43b, or over 12 times the amount GM spent on AmeriCredit. Though paying back taxpayers would likely help GM’s sales by eliminating the sense of obligation to taxpayers, the idea of GM buying back equity from Treasury is nothing short of laughable given that its cash pile stands at about $30b (or about $14b short of what it needs).

But even if you remove the taxpayer angle from the equation, there are still good reasons for sharing Grassley’s misgivings about the deal. Perhaps the best-articulated criticism of GM’s deal from a cash-management perspective comes from the NYT’s Deal Professor Steven Davidoff, who argues

With more than $35.7 billion in cash and marketable securities on its balance sheet as of the end of the first quarter of this year, G.M. is paying cash for AmeriCredit, something it certainly could not have done without the tens of billions of dollars that it received in government assistance. G.M. is also paying a 24 percent premium to AmeriCredit’s closing stock price on the day before the deal was announced.

If I were an owner of G.M., and I suppose I am in part as a taxpayer, I would wonder if that cash might not be better used as a special dividend to G.M.’s shareholders. Certainly, the fact that G.M. is spending $3.5 billion will be noticed by its unions and seen as a sign that there is cash available for them too.

Taken with TTAC’s latest analysis of the GM IPO, it’s clear that GM still doesn’t understand that its government-supplied cash pile paints a huge target on its back. Given the political overtones to anything related to subprime lending, it’s hard to imagine the UAW not seeing this deal as a sign for it to start pushing concession rollbacks. Meanwhile, $3.5b might not be enough to make an impact on taxpayer ownership, it does represent a healthy amount of R&D spending, or most of the amount needed to rescue GM’s European division, Opel, or enough to affect any of the other cash outlays that GM will not be able to get away from over the next five years. Instead of looking at looming medium-term costs, GM jumped into AmeriCredit because, as Davidoff points out

Managers with too much cash to burn will burn too much cash. If you want a real-life example, simply read the beginning of “Barbarians at the Gate” and Ross Johnson’s epic struggle to spend all of the money that RJR Nabisco was throwing off in the 1980s.

If GM could expect a serious improvement in its business by acquiring a subprime lending arm, these criticisms might be easy to dismiss. Unfortunately, the “bad habits” critique offers strong evidence that this is not the case. Davidoff lays out the case thusly

First, when G.M. owns a captive lender, it subsidizes the plants, labor unions and dealers. Captured finance means nonmarket financing for buyers when they receive a loan. Think zero percent financing. In connection with the acquisition, AmeriCredit will also re-enter the lease financing business, raising similar issues. Lease financing for automobiles usually results in artificial residual pricing for the buyout price at the end of the lease. All of this helps empty dealer lots and keeps plants running. But it oversupplies cars. The problem of artificially oversupplying new cars (like new houses) is put off for another day.

Second, the subsidy ensures that people who may not otherwise qualify to buy new cars do so. They overconsume and overspend as they shift their buying from used cars to new cars. This may be an immediate net gain for an economy in distress, but it may be a drag as well, as consumers divert income that could be used for other things that would perhaps create more wealth over all.

And, as the Peridot Capitalist points out, fueling another boom-bust cycle through lax standards is a recipe for, well, another bust.

While I am sure those in the industry will praise this deal as a way for GM to maximize unit sales, we need not completely forget how cyclical economies work. Subprime lending pays off when the economy is improving but when the business cycle inevitably turns (as every economy does), the loans turn sour, the losses are crushing, and the cycle starts all over again. To me this highlights one of the core problems our domestic economy has developed over the last 10 or 20 years. We continue to follow the path of loose credit when things are going great and at the first sign of a downturn, credit standards increase dramatically. Once things stabilize, we hear that banks are slowly reducing their standards and loan volumes increase again.

Of course, this line of reasoning is vulnerable to exaggeration. The Atlantic’s Daniel Indiviglio notes that

The auto market also doesn’t really have to worry about the kind of bubble that struck the mortgage market, specifically because autos are a depreciating asset. Millions of people are going to hope to get rich quick by flipping their cars, for example. There’s an old industry adage that most people will keep paying their auto loan even after they’ve defaulted on their mortgage, because they need their car to get to work. They can default on their mortgage and rent, but they probably don’t want to have to walk if they lose their car. Moreover, if times really got tough, and they did lose their home, they could always live in their car temporarily.

Indiviglio’s defense of subprime auto lending is cogent and well-argued, but even that isn’t enough to convince him that the AmeriCredit deal was a good idea. He concludes

Of course, none of this means to imply that it makes sense for GM to purchase Americredit. While most other auto companies, particularly foreign ones like Nissan and Honda, have found it sensible to keep a captive finance company in-house, none of those are subprime. They generally cater to people with very strong credit so they don’t have to worry about strategy and can simply earn interest on loans that are a very safe bet. So it’s puzzling that GM wouldn’t just focus on building up a new prime borrower-driven captive unit instead. And it’s even stranger that the government wouldn’t raise its eyebrows when GM is making an acquisition rather than engaging in additional divestitures to try to pay back the billions it still owes Uncle Sam.

Underlying these criticisms are the obvious incentives that GM has to improve its short-term performance even at the expense of its long-term health. IPOs are notorious pressure-cookers, focusing an entire company on projecting a certain image for one discrete moment. Given GM’s history of overproduction and volume-boosting tricks that inevitably must be paid off in either falling resale or diminished profit margin, this line of criticism can’t be ignored. Especially because we already know that much of GM’s cash is essentially spoken for over the medium term.

The final criticism of GM’s AmeriCredit acquisition involves The General’s former captive finance unit Ally Financial. The criticism is a simple one: though Ally will continue to provide floorplan financing to GM dealers as well as some retail loans, AmeriCredit will inexorably grow closer to GM once its credit rating improves on the strength of its consolidation to GM’s balance sheet. Already losing out on GM retail loans, Ally could find itself replaced by AmeriCredit as GM’s main floorplan lender, dealing Ally a devastating blow. The WSJ [sub] puts the relationship between Ally and GM into context

Ally financed 33.5% of GM’s U.S. customers in the first quarter, compared with 30.3% as of Dec. 31. It financed 87.7% of the inventory in GM’s U.S. dealerships during the same period, compared with 90.9% in the fourth quarter.

The problem is that Ally still owes taxpayers $16.3b, and by buying AmeriCredit instead, GM may have doomed Ally to a much longer payback timeline, effectively increasing its impact on taxpayers. After all, GMAC might not have been rescued from its subprime mortgage mess had it not enjoyed its close relationship with GM, which the government was set on rescuing. It’s galling enough that GMAC was rescued as a “stealth bailout” for GM, but the fact that GM is now throwing Ally to the wolves is one serious twist of the knife.

On the other hand, had GM bought Ally, it would have been doing a great disservice to its balance sheet. Not only would buying GMAC have been expensive, it would have brought more government debt on board, and would have faced regulatory issues as well, as Ally is a bank holding company. Ultimately, it’s impossible to fault GM for not going with Ally… the blame belongs to the auto task force, which saw GMAC/Ally’s importance to GM without facilitating their long-term cooperation. Both GM and Ally insist that their relationship remains strong, but it’s hard to imagine GM acquiring a lender and not moving aggressively to consolidate its credit business with that lender. And once again, the taxpayers will be left holding the bag.

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Desperately Seeking Subprime: White House Admits GM’s IPO Dash Hurting Ally’s TARP Payback Thu, 24 Jun 2010 18:24:19 +0000
The WSJ [sub] reports that GM is officially looking outside of its former captive finance arm Ally Financial (formerly GMAC) as it seeks more subprime loan deals to drive sales volume ahead of its IPO. GM execs tell the WSJ that The General could do even better with an in-house finance arm, but that these deals will help. And, according to Experian Automotive’s Melinda Zabritski, GM needs the help because

By not financing [subprime] consumers, they are locking out about 40% of the U.S. population

GM’s restructuring consultants AlixPartners add that loyalty improves for customers who buy using a captive lender. The downsides? Higher default risks, the temptation to overload on incentives, and then there’s one more biggy…

Ally is one of the few banks who were rescued by the TARP program to not yet pay back government loans. The WaPo points out that by looking elsewhere for risky loan deals, GM is starving Ally of cash, and is hurting the bank’s chances of repaying its TARP loans. And this conflict between bailed-out firms is clearly grating on the White House, which anonymously tells the Post

Everyone tries to draw you into it. . . . For us, it’s like choosing between your children… We have to keep an eye on what’s going on, for the sake of the taxpayer. But this is exactly why the government shouldn’t be in private-sector business

If the Obama White House is acknowledging the fact, long harped upon here at TTAC, that the auto bailout creates irreconcilable political conflicts, that represents a major shift in tone. It’s just too bad reality can only be acknowledged anonymously.

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GM Captive Finance Push Explained: The General Wants More Subprime Business Mon, 17 May 2010 22:56:04 +0000

When we first heard that GM was eying a return to in-house financing, our first reaction was to worry that

the potential for falling back into old bad habits can’t be ignored.

Clearly our concern wasn’t wasted, as the AP [via Google] reports that The General’s major motivation for considering re-creating a captive lender is to chase subprime business its current major lender won’t touch. And considering that that lender is GM’s bailed-out former captive finance lender GMAC (now Ally Financial), which was badly burned by subprime mortgages, it’s not surprising that GM is frustrated by GMAC’s tentative approach. But should The General charge into the low-standard lending sectors where Ally fears to tread?

At the moment, GM’s window of opportunity for forming an in-house finance unit that could sweep up subprime business is as good as it is likely to get. Not only is the overall market for cars struggling to regain its footing after a disastrous 2009, Toyota has responded to its recent recall scandal by offering unprecedented incentives and finance deals. GM may be making money in this environment thanks to deep cost-cutting and a bankruptcy-rinsed balance sheet, but its volume isn’t increasing the way leadership would like to see, despite exceeding industry incentive-per-vehicle averages for all but one of the last 16 months .As a result, GM’s market share is remaining stagnant.

New product coming through development is ultimately responsible for improving volume and market share, but aside from the Cruze which launches this year, there’s not a lot of big-volume new products planned for release over the next 9-12 months. And that’s the timeframe for GM’s likely IPO, which will likely require a minimum of two back-to-back quarterly profits, and marked improvements in volume. Until the Cruze comes, GM has few other options for “moving the needle” in its business, except for targeting subprime buyers.

GM’s North American boss Mark Reuss points out that Honda gets 20 percent of its sales from subprime borrowers, whereas GM gets a mere one percent of its business from these riskier lenders (through April, GM has sold 659,475 units whereas Honda sold 331,597). Reuss says the difference is captive finance.

They’re able to finance their cars at a much lower level than we are. I’m not sure what the answer is. But it would sure help my sales, the company’s sales in North America, if we were able to get access.

Specifically, it will help sales soon. Credit raters Experian say 16 percent of all car loans in the fourth quarter of 2009 were subprime, a distinction it bestows on borrowers with credit ratings below 620 on its 300-800 scale. Though Ally won’t reveal how many subprime loans it approves now, it does disclose that only 12 percent of its Q1 auto business was in leases. Ally spokesfolks say that

As the financial crisis has eased and as the credit markets come back we have been able to broaden our offerings and look at the credit spectrum more broadly

But that’s clearly not happening fast enough for GM. Though Reuss stops short of admitting GM is pressuring Ally for more subprime business, he did indicate that the topic was “an area of opportunity.” But if government-owned Ally isn’t interested in underwriting GM’s volume gains with risky loans but also isn’t interested in seeing its auto lending business bought by GM, there’s trouble brewing. After all, that would leave GM with only two options: partnering with another bank, or starting a new captive lender. Either way, a new GM captive lender would likely force Ally into offering more subprime business anyway, or face losing its huge percentage of GM business.

Either way, GM’s understandable impatience with government ownership is pushing it into risky territory. And the dangers of redlining a car business through risky loans isn’t limited to the risk of default: brand degradation, falling resale values, and boom-bust bubbles all come with the territory. Which is not to say GM is incapable of handling more subprime business… but rushing into risky positions in order to goose short-term performance has been a consistent bugbear of The General’s.

And with state-owned Ally hanging in the balance, the political calculations won’t be easy either: should Ally be forced to sacrifice its most profitable business that GM might live to pull off an IPO? Or should GM forgo in-house lending, and struggle along without putting up the kind of performance that could inspire a successful IPO, until the next downturn forces another bailout? Meanwhile, what about Chrysler? In any of these scenarios, the taxpayers lose. And even if there is a way to get GM to fatten itself on in-house, subprime loans without killing Ally and Chrysler, there’s still the longer-term default risk inherent in the subprime strategy, which could also bring down the General in the case of another downturn.

There are no easy answers in this mess, but there is plenty of past behavior on which to predict future performance. History, with apologies to William F. Buckley, is standing astride General Motors and shouting “stop.”

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GM And Chrysler Racing Towards Captive Finance? Thu, 13 May 2010 18:25:16 +0000

News that GM is considering a number of options for a return to captive finance, has lit a fire under Chrysler CEO Sergio Marchionne, who tells the Detroit News that

One of the things that we do not wish under any circumstance is to have an uncompetitive relationship vis-À-vis GM

At this point, the indications aren’t good. Ally Financial CEO Michael Carpenter said in a statement yesterday that
Ally Financial Inc. (Ally) is committed to supporting the auto industry with competitive financing products and services to enable vehicle manufacturers and auto dealers to achieve their goals of selling and leasing vehicles.

As a bank holding company, we have been able to consistently and cost-effectively provide financing to approximately 6,000 dealers and millions of consumers, which has led us to be the largest financing provider for both General Motors and Chrysler.

Today, we are better positioned to offer more stable funding through a variety of economic climates and to be more competitive from improved funding costs related to an increased level of deposit funding from our commercial bank and an improving business model.

The WSJ interprets this statement as Carpenter

signaling an independent stance following word that General Motors Co. might get back into auto lending.

After all, GM is only interested in Ally’s auto finance business, which is a far more consistent performer that the bank holding company’s long-troubled residential mortgage lending division. Besides, returning to the bosom of GM would force Ally to leave a lot of auto finance business on the table, not the least of which is Chrysler’s business. Marchionne warns that

We need to transition to a permanent, stable solution for Chrysler going forward. Once they tell me that GMAC is going to go back into General Motors, we need to have the time, the space to find an alternative solution to the long-term future of Chrysler.

As the WSJ’s Heard On The Street Blog puts it,

Ally’s separation has given it lower financing costs and freedom to serve other car makers, not just GM. “The value of Ally’s franchise is maximized by being separate,” says Adam Steer of CreditSights.

In theory, GM should be able to focus on its core business of making vehicles and make a good return on investment. Ally, focused on providing financing, should be able to do the same.

In other words, GM buying up Ally’s auto business would be good for GM and it’s profit and IPO chances, but it would be bad for Ally, and bad for Chrysler… both of which are still partially owned by the government. Moreover, buying Ally would also land another $16.3b in government debt on GM’s lap, giving critics of “Government Motors” even more populist ammunition. But then, if GM doesn’t buy Ally’s auto finance business but starts its own captive lender instead, it will have to compete with the company that already finances 87 percent of the vehicles on GM’s dealers’ lots. And Chrysler will have to start its own finance company. And then Ally won’t have enough business and its $16b+ bailout will have been wasted. Unless, of course, there’s a way to finesse the situation… because GM and Chrysler seem dead set on returning to captive finance.

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GM Eying Return To Captive Finance? Tue, 11 May 2010 23:43:49 +0000

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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GMAC Renames Itself Ally Financial Sat, 08 May 2010 16:58:35 +0000

Perhaps the most fundamental challenge facing bailed-out financial and auto firms is convincing consumers to leave aside their anti-bailout prejudices and start buying their products. For GM, the first step in this process was as simple as repaying a loan and airing a “Mission Accomplished” advertisement that did everything but show Ed Whitacre landing on an aircraft carrier. For GM’s former captive finance arm, GMAC, escaping the stain of the bailout is a more prosaic matter. Having already launched an online consumer-oriented banking arm by the name of “Ally Bank,” the finance company is adopting the innocuous Ally moniker for its entire business, reports the Detroit News.

After all, would an Ally really take $17b+ after binging on subprime mortgages? More importantly, because GMAC/Ally does more than just finance auto sales (although it is one of the largest lender for GM and Chrysler’s sales and floorplaning), it needs to escape the perception that it is in any way associated with GM. And because GM is desperate for GMAC’s bailout not to be seen as part of the auto bailout (which it assuredly was), the name change is convenient for The General as well. But then, when is misleading consumers ever not convenient?

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GM, GMAC Go Their Own Ways Wed, 17 Mar 2010 18:19:04 +0000

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.

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Congress: The GMAC Bailout Might Have Been A Bad Idea Fri, 12 Mar 2010 17:12:59 +0000

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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GMAC Needs More Loan And Lease Subsidies To Survive Fri, 12 Feb 2010 17:55:37 +0000

Having recently posted a nearly $5b loss, bailed-out auto finance giant GMAC says it needs more help from automakers to remain competitive. Automotive News [sub] reports that GMAC CEO Mike Carpenter told reporters that “the success of GMAC Financial Services hinges on more loan and lease subsidies from General Motors Co. and Chrysler Group,” and that “GMAC requires additional marketing funds from the automakers to provide competitive loans and leases to the GM and Chrysler dealer networks.” GMAC’s Chrysler business has nearly doubled in the last quarter of 2009, now providing about 26 percent of Chrysler’s retail financing and about 30 percent of GM’s.

And as if GMAC’s request for more assistance from the bailed-out automakers weren’t troubling enough, Carpenter also indicated that GMAC can’t compete for business with customers who enjoy excellent credit ratings. These customers are being offered terms by cash-rich banks that GMAC simply can’t compete with, forcing it down the ladder to service the less credit-worthy portions of the market. Which is a large part of what caused GMAC to get into so much trouble in the first place.

On the floorplan financing side, GMAC provides 91 percent of GM’s dealer floorplan financing and 77 percent of Chrysler’s. Both Chrysler and GM have recently sworn off volume-boosting incentives and subsidies on the retail side of the business, but GMAC’s struggles indicate just how much pressure there is to keep such profit-sapping incentives. Subsidized leases present a particular danger, as they not only reduce profit, but can have sharply negative effects on resale value, another factor leading up to GMAC’s near-bankruptcy and government rescue.

GMAC’s request for more assistance with loan and lease subsidies, as well as more credit-deal-related marketing spend shows how dangerous it is for the bailed-out automakers to be relying on a bailed-out financier as a quasi-captive lender. GMAC was hitched to the automakers as a convenient source of credit for their reformed but unproven business models, and its own weaknesses are pressuring those automakers to go back to old, bad habits. Who would have thought that building a three-legged stool out of three failed businesses would ever lead to this?

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Congressional Oversight Panel: Why Did We Bail Out GMAC Again? Fri, 15 Jan 2010 19:33:28 +0000

The TARP bailout of GM finance partner GMAC is being criticized by a congressional oversight panel [full report in PDF format here], reports the Detroit Free Press. The panel alleges that the Treasury

has not yet articulated a specific and convincing reason to support the company… It has never stated that a GMAC failure would result in substantial negative consequences for the national economy. If Treasury has made such a determination, then it should say so publicly.

There are plenty of possible explanations for why GMAC was bailed out. The most obvious is that it was part and parcel of the auto bailout. GM’s dependence on leasing and finance deals as well as the inability of GM dealers to get floorplan financing on the public markets made GMAC a crucial component of any rescue of General Motors and Chrysler. As the report notes

Treasury has stated that if it refused to support GMAC after providing assistance to GM and Chrysler, it would undermine its own investments in the automotive companies.

The tin foil hat crowd might point to Cerberus’s “voluntary” decision to walk away from Chrysler, and say that Cerberus-owned GMAC was bailed out as a quid-pro-quo for that “sacrifice.”

Either way, the report’s section on GMAC concludes:

It does not appear that the support has been made on the merits of the investment, particularly given GMAC’s recent statements that it anticipates reporting fourth quarter 2009 losses of approximately $5 billion…

Moreover, GMAC has received different treatment from all other financial institutions that were subject to the stress tests.  Unlike other institutions, it was subjected to additional stress tests after the initial stress test results were released in May, and unlike other institutions, its capital buffer requirements were revised in light of this second round of tests.  GMAC was the only institution that was allowed to benefit from post-May improvements in its financial position and in related sectors of the economy.  In the face of criticism about the merits of saving GMAC, Treasury owes the public a more detailed and convincing explanation not only of its rationale for providing substantial assistance to GMAC, but also of its rationale for treating GMAC differently than other stress-tested institutions.

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Bailout Watch 579: GMAC To Score $3.5b More Thu, 31 Dec 2009 16:20:36 +0000 The artist formerly known as GMAC

The underlying cause of GMAC’s failure was no different than so many other American financial institutions: giant bets on risky mortgages at the height of a real estate bubble. And though that error alone would have qualified GMAC for a bailout rescue along with the other failed banks, The WSJ reports that the ongoing support for GMAC is “reflects the troubled company’s importance to the revival of the auto industry.” And man, it had better be important. The GMAC bailout has been one of our least-favorite of the season, rewarding poor practices in auto and mortgage lending, and exposing taxpayers to inordinate risk. But, as TTAC warned back in the pre-bailout days, once the camel gets a nose into the tent, good luck getting it out. And so, GMAC will be receiving another $3.8b in TARP support, on top of the $12.5b it has already received. As a result, the US taxpayer’s stake in GMAC is expected to rise above the current 35 percent stake, just in time for more write-downs planned for the next week. The cash injection is said to prime GMAC for a profitable Q1 2010, erasing some giant losses in the bank’s ResCap mortgage unit. And of course the move will help GMAC continue to underwrite the leases that Chrysler and GM so desperately need, but can’t afford due to plummeting resales. GMAC’s bailout often doesn’t get marked up in the auto industry bailout tally, but at over $16b so far, it’s one of the crucial pieces keeping the zombie automakers shambling along. Now, about repayment…

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Chrysler’s Latest Metal-Moving Trick: Retiree Leases Are Back Thu, 10 Dec 2009 21:34:53 +0000 Winter can be tough (

Well, we’ve been here before… about this time last year, to be exact. The Freep reports that Chrysler, which had to quit leasing for much of last year due to falling resale values and the credit crunch, is reinstating subsidized leasing for its 26,000 qualifying retirees. Under the terms of the plan, retirees could lease up to two 2010 Chrysler, Dodge or Jeep products with no down payment and free scheduled maintenance. The 36-month leases run from December 9 through June 30, 2010. According to the Freep, retirees will pay $100 per month less on average than Chrysler employees who have access to two-year leases. GMAC, which is financing the leases, is set to receive another government bailout of “less than” $5.6b on top of the $13.5b it has already received from the TARP program.

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DetN Bailout Report: White House Forced Rapid Bankruptcy, UAW Refused Hourly Pension Freeze Tue, 24 Nov 2009 15:58:23 +0000 Do you remember the time? (courtesy:WSJ)

On October 13th of last year, when TTAC’s Bailout Watch clocked in at a mere 115 entries, GM’s then-CEO Rick Wagoner and board members Erskine Bowles and John Bryan approached the Treasury for a “temporary” bailout. Not that we knew it at the time. “In this period of continued uncertainty in the markets, you really can’t rule out anything,” said GM spokesfolks at the time. “Stand by for another big public investment in a failing firm,” warned TTAC. As subsequent events proved, the rush to bailout had already begun. Funny then, that we’re only now learning some of the most crucial details of the chaotic maneuvering of late 2008, thanks to a Detroit News investigation. Though the industry’s disastrous hearings before congress nearly derailed the deal, the initial strategy of approaching the White House would prove to be the key to the eventual bailout. In fact, President Bush was ready to provide $25b to GM, Chrysler, GMAC and Chry-Fi on December 19, only to have talks with the two finance firms break down. Instead, GM and Chrysler were given $9.4b and $4b respectively, with GMAC getting $7b 10 days later and Chrysler receiving $1.5b in January.

This staggered bailout, with multiple tranches soon came to symbolize the indecisiveness that would characterize the entire rescue effort. For example, the idea of a merger between GM and Chrysler was being discussed up to late October, when it was abandoned by GM, only to be brought back to the table early in 2009. Twice. The DetN explains:

Henderson rebuffed overtures from Chrysler in February, but two months later he raised with the task force the possibility of acquiring parts of Chrysler, if a deal with Fiat faltered. “If the Chrysler deal doesn’t go through, we’re interested in some pieces of Chrysler,” Henderson said, according to a person familiar with the situation. “We’re interested in Jeep. We’re interested in a couple of the powertrains.” GM was most interested in Chrysler’s jewels: the Jeep brand, Dodge trucks and minivans. “Fritz’s view on the Ram was, it’s a brand new Ram. You run it for five years for cash and not do a new one,” said a person involved in the talks. Also under consideration in GM’s corporate mind: eliminating Chrysler’s dealer network, and selling Chryslers at GM dealerships.

Several members of Obama’s auto team (including Steve Rattner) remained in favor of an American Leyland solution, until someone did the math and realized that a GM-Chrysler merger would be more of a Canadian Leyland affair. Most of the jobs that would have been saved in such a scenario would have been located in Canada, while it would only have saved about a quarter of Chrysler’s US jobs. The task force quickly came to see a GM-Chrysler merger as a worst-case scenario in the event of a failure of the Fiat option, even though it could have been a cheaper option.

As both companies began to move towards bankruptcy, the government task force took a firm hand in guiding the processes. Even though GM had foreseen a somewhat different bankruptcy experience than the government had planned.

GM planned to present a 300-page slide presentation at the first meeting. The Obama team wasn’t interested. Instead, they went through 15 major issues and assigned deadlines to specific people. With the efficiency of a drill sergeant, task force member and Wall Street vet Harry Wilson, went through each item and got a commitment of when it would be completed. GM filed for bankruptcy June 1. CFO Ray Young said that due to its complex accounting system, GM couldn’t exit by Aug. 31 or even Sept. 30, the end of a quarter. Wilson was incredulous: GM would lose at least $100 million a week during bankruptcy, and would be willing to incur as much as $1 billion in additional losses, because it couldn’t resolve accounting issues. “I can’t think of a problem in the world I can’t solve for a $1 billion,” Wilson said, according to participants.

The government task force also held secret talks to sell GM’s bankrupt supplier Delphi to financier Carl Icahn, which fell apart when Icahn held out for a better deal. The UAW was no better of a partner in the sacrifice-sharing department. GM had asked the UAW to freeze its hourly pension plan, a move that the union refused point-blank. Could the government have pushed the union to accept GM’s offer? Perhaps, but the will clearly wasn’t there. And UAW President Ron Gettelfinger was standing tough, even with the fate of the entire industry on the line: he actually walked out of one meeting with Fiat’s Sergio Marchionne.

None of these revelations carry the explosive power they would have had they been made public during the course of bailout deliberations. In retrospect, though, they provide a few more wrinkles to the bailout narrative. The battle over the bailout, as such, is over. The taxpayers will take a bath on the adventure, no matter what. But by studying the events of the last 15 months, we may yet learn valuable lessons about government support for an industry that could well end up needing more.

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Bailout Watch 573: GM Bailout Cost Taxpayers $12,200 Per Car Thu, 19 Nov 2009 17:14:52 +0000 Condition 1: taxpayers get the hose (

This according to the National Taxpayer’s Union report “The Auto Bailout: A Taxpayer Quagmire,” authored by Rochester Institute of Technology Professor of Economics, Thomas D. Hopkins. That number includes the $52.9b taxpayer “investment” in General Motors, as well as GM’s portion of the GMAC bailout, which brings GM’s taxpayer tab to over $60b. Chrysler’s GMAC-inclusive bailout bill totals $17.4b, or $7,600 per vehicle, based on estimated 2009/2010 sales. Don’t believe that GM or Chrysler will match their projections over the next twelve months? The NTU estimates that total government support for the auto industry comes out to $800 per taxpaying American family. These numbers do not include the Cash for Clunkers program, likely future bailouts of GMAC (projected at a further $2b), or Department of Energy retooling loans (ATVML). These numbers also do not reflect the very real possibility that GM, Chrysler and GMAC could continue to drain taxpayer money post-2010. “For each year of survival beyond 2010,” the report warns, “the burden per vehicle would decline [Ed: but not disappear] – so long as no additional government funding is provided.”

The report concludes:

Viewed from today’s vantage point, the auto bailout is troublesome in a number of respects. As already noted, the bailout has become a taxpayer quagmire, escape from which will be a major public policy challenge. The recommendations offered by the GAO have much merit, especially those focused on developing an exit plan and on ensuring during the interim that management of the three firms is insulated from political pressures. Sound business practices, not special interest advocacy, should prevail. Both require that a qualified, objective and independent team be given full access to current information about the firms’ operating and financial conditions.

Greater transparency should be achieved so that taxpayers will be better able to understand both issues and outcomes. In particular, taxpayers as part-owners of each of the three firms should be given the same information, on the same timely basis, that public corporations routinely would be required to provide shareholders.

More generally, the bailout has been a sobering experience whose adverse consequences cannot be corrected easily. Auto producers whose products American consumers find most appealing have been notably missing from the roster of bailout recipients. Our subsidies instead have gone to the poor performers, firms whose past management decisions proved faulty. As a result the bailout has created moral hazard problems, inadvertently handicapping the progress of stronger, non-subsidized producers. The problems extend beyond just the auto industry, as favored status for one financial company and its bank necessarily complicates prospects for non-subsidized rivals. The time has come to stop such bailouts, and in an orderly way, to seek at least some recovery for taxpayers.

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Chrysler Dealers Appeal to Marchionne in GMAC Dispute Thu, 12 Nov 2009 15:22:10 +0000 (courtesy:

“I don’t see anyone bleeding to death,” Sergio Marchionne told reporters and analysts a week ago, when asked what he thought of Chrysler’s current dealer body. He might be about to change his tune. The US Treasury will stop guaranteeing GMAC’s floorplan loans to Chrysler Group dealers on the 21st of this month, and the bailed-out lender has marked over 100 dealers to be cut off. According to the Detroit Free Press, these dealers had all survived Chrysler’s dealer consolidation efforts in bankruptcy, indicating that their sales business is relatively steady. But because of huge investments made with Chrysler Financial loans at the height of the real estate market, these dealers owe more than their dealerships are worth. Chrysler Financial is winding down its business, and it refuses to give up the first right to the property as collateral. Because GMAC is now a bank holding company and requires more collateral on loans than it previously did, it wants land and buildings put up as collateral that are already securing old Chrysler Financial loans. Of course those old loans were for renovations made as part of Chrysler’s “Project Genesis,” which dealers had little choice but to participate in. If those Chrysler-mandated investments meant certain dealers were not going to qualify for floorplanning, they should have been culled during bankruptcy. Which is why NADA is appealing to Chrysler CEO Sergio Marchionne on behalf of the threatened dealers. And maybe if Marchionne takes a look into this meatgrinder, he’ll see a few dealers stuck between giant, bailed-out businesses, bleeding to death.

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Bailout Watch 374: Obama Admin Favors Multiple Car Czars Thu, 05 Feb 2009 19:55:38 +0000


An increasing number of media reports are indicating that instead of a single “car czar,” Obama will appoint a team to oversee the auto industry turnaround effort. Current reports indicate that Democrat fundraiser Steve Rattner will likely take the top oversight position, but his total lack of (non-political) qualifications for the job is considered an issue. Which is where Stephen Girsky comes in. “They clearly need an adviser who knows the industry,” former Chrysler president Thomas Stallkamp tells Bloomberg. “Girsky certainly knows the industry, and he was close to both GM and the union.” And though I have questioned whether Girsky’s UAW affiliations are best described in the past or present tense, this 2004 presentation (PDF) to Original Equipment Suppliers Association is decidedly prescient. Especially for 2004. And this December 2008 presentation to UAW Local 14 seems to indicate that his recent advising stint with the UAW was a mission of truth and reconciliation rather than one of conniving and obfuscation.

Of course, no matter how TTAC-ish Girsky is, if he’s answering to a wannabe media mogul who just happened to raise $100k for Obama, there’s no knowing what the result might be. Especially considering that Rattner is embroiled in a dispute with Chrysler’s and GMAC’s owner (Cerberus) over a $125m loan his private equity fund received from Cerberus to purchase Maxim Magazine. Seriously. “It’s crazy,” one surprised source familiar with the money squabble tells the NY Post. “Cerberus is about to foreclose on the loan to Quadrangle, and now Steve Rattner is going to be the boss of Cerberus.” Crazy indeed.

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