GMAC Teetering on the Abyss

Robert Farago
by Robert Farago

You know that perfect storm that I keep predicting for Detroit? Keep in mind that the metaphorical meteorlogical phenomenom requires a confluence of jumbo-sized atmospheric disturbances. So, what have we got? Well, even if we restrict our forecast to Chrysler, we've got parts supply problems, too many products, too many bad products, too many dealers trying to sell bad products, not enough customers willing to buy bad products, lousy marketing, killer competition, a private equity firm with all the patience of a crack head, and a CEO whose M.O. is cut and run. Add to this looming prospect of GMAC going belly-up. Bloomberg [via Automotive News, sub] reports that Cerberus founder (and current Chrysler owner) Stephen Feinberg sent a letter to investors warning that GM's finance arm faces "substantial difficulty" if credit markets do not improve (what are the chances?). Last year, GMAC lost $1.6b in the first quarter, and $724m in the fourth. If GMAC's mortgage and car loan biz sucks to the point of collapse, Chrysler Financial isn't likely to be hale and hearty. At some point, Cerberus will have to switch into dump mode. They'll throw the automaker and their two financial units into Chapter 11. What would happen to GM, which owns 49 percent of GMAC and depends on the finance arm for cheap car loans? That's another story…

Robert Farago
Robert Farago

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  • Windswords Windswords on Feb 15, 2008

    Caption for the picture: Dieter: "Zo, I told ze customer, dat's not a defect, dat's superior German engineering!"

  • Gardiner Westbound Gardiner Westbound on Feb 15, 2008

    Cerberus, like Enron, think they are the smartest guys in the room. Hubris will bite you in the ass every time.

  • Sherman Lin Sherman Lin on Feb 15, 2008

    And it couldn't happen to any nicer guys

  • Landcrusher Landcrusher on Feb 15, 2008

    Gardiner, There is a big difference with Cerberus. They are doing it with their own money. I say that means they can act as cocky as they want.