Bailout or Not, GMAC May Drag GM Under

Once upon a time, GM’s captive finance unit GMAC was the engine of its success, pouring billions and billions and billions of dollars into the General’s corporate coffers. At some point, the tail wagged the dog: cheap credit and lax lending practices fueled an unsustainable growth in new car sales. A bubble that recently burst (in case you hadn’t noticed). Meanwhile, GMAC’s mortgage unit ResCap pursued the same no-loans-barred policy, only worse. Then, in his endless (seemingly, at the time) pursuit of propping-up GM’s bottom line with asset sales, CEO Rick Wagoner sold 51 percent of the soon-to-be-troubled finance unit to, of all people, Cerberus (owners of Chrysler and Chrysler financial). Which brings us to today’s GMAC, which is about to go tango uniform, hoisted by its own retard. The only way out: change itself into a bank and scarf some major bailout bucks. Only there are rules for that sort of thing…

“To become a bank holding company, GMAC must meet a minimum standard for capital defined by the Treasury Department, which administers the rescue fund,” Automotive News [sub] reports. “To raise the money and enhance its liquidity, GMAC seeks to persuade bondholders to exchange $38 billion in existing bonds for new debt. For the debt swap deal to go through, GMAC says it needs bondholders representing at least 75 percent of the $38 billion — about $28.5 billion — to take part. Last week, though, GMAC conceded it had met just $8.3 billion of that goal.”

Oops. So what happens next? Either the Treasury changes the rules– as if– or GMAC files for C11. “If the lender goes under, as many as half of GM’s 6,450 U.S. dealerships could be forced to close because they could not finance inventory, predicts Martin NeSmith, a GM dealer near Savannah, Ga. ‘Some might be able to get financing,” says NeSmith, who is GM national dealer council liaison to GMAC. “But a lot of them won’t.'”

At the risk of seeming callous, what’s wrong with that picture? GM needs to trim its dealers by at least that much. But imagine the inventory glut that would result from a sudden, catastrophic failure of 3200 or so GM vehicle-stuffed dealers. And if ResCap goes down, its creditors will come after GM– with a vengeance.