Bailout or Not, GMAC May Drag GM Under

Robert Farago
by Robert Farago
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.

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  • Nick Nick on Dec 15, 2008

    Interesting: J. Ezra Merkin, the chairman of GMAC Financial Services, was among the victims of the immense Madoff ponzi scheme. That's confidence inspiring.

  • Redbarchetta Redbarchetta on Dec 15, 2008
    928sport: After this mornings news of the White House giving up to 40B to these loser’s I know now why people go Postal! What are you talking about? I haven't heard about $40b going to anyone, do you have a link.
  • Cprescott The cost of these golf carts will be the deciding factor
  • Golden2husky Cash for clunkers was a horrible waste of resources. "Car dealers are asset rich and cash poor. Cash flow is something we look at every single day in a car dealership," she continued. "What if that $200,000 the government owes me is the same time I have a big payroll, and I have floorplan to pay off and, oh, it's tax time? All of a sudden, the dealer is in a cash crunch."Oh, my heart is just breaking for them...and with all that ADM, they can go screw themselves...they should have a line of credit. Use it.
  • Sgeffe How much of a current draw is one of those digital plates?
  • Ajla I had a chance to drive a few Toyota/Lexus products the last two weeks. The turbo-4 is basically charmless. I don't see much reason to go for it over the over the 2.5L or a HSD hybrid. Maybe if you live at higher elevation?The "HybridMax" is interesting. The stronger rear motor gives it more of a RWD feel. It isn't a sporty powertrain but was reasonably smooth and powerful.
  • MaintenanceCosts A fair deal would be a single tier with at least a 33% raise for everyone over the life of the contract to make up for recent inflation and quite a few below-inflation years.Retiree health benefits and pensions are ridiculous, could legitimately bankrupt the automakers (unlike the raise), and shouldn't be in the deal.I'd really like to see the union accept a bit less cash and go after the 32-hour workweek harder. I think all of our society would be better on a four-day-a-week schedule, with little if any loss of output - business after business has found that people are more productive with four-day schedules, and almost everyone who tries it keeps it.