GM Falls on Its Sword to Rescue GMAC

by Robert Farago

Published: December 15th, 2008

According to Yahoo! Finance, “General Motors Corp. said in a regulatory filing Monday [full text after the jump] that it and GMAC LLC agreed to temporarily adjust the financing company’s terms for making advance payments to the automaker for the wholesale financing of vehicles sold to GM dealers.” Zooming in… “GMAC typically pays GM the invoice amount for each vehicle shipped by the automaker to a GMAC-financed dealer on the first business day following the vehicle’s shipment.” Closer… “Under the deal, GMAC won’t be required to pay the invoice amount until that amount is due from the dealer, which will allow GMAC to defer payment of up to $1.5 billion in cash due to GM until Dec. 30. GM will have a security interest in the financed vehicles during the shipping period.” Holy brink of bankruptcy Batman! Clearly, GM intends to use federal bailout bucks– should there be any– to prop-up GMAC. Never mind that, this move virtually eliminates GM’s cash flow (such as it is). I mean, GM won’t get paid for these vehicles in months. If ever. And if GMAC is down to its last $1.5b of liquidity, this little paper shuffling exercise ain’t gonna save nothin’. Bye-bye GMAC, arrivederci GM. Drink up lads. Last orders.

ITEM 8.01 Other Events

On December 9, 2008, General Motors Corporation (“GM”) and GMAC LLC (“GMAC”) agreed on a temporary basis to adjust GMAC’s terms for making advance payments to GM for wholesale financing of vehicles sold to GM dealers. GM typically has an increase in its inventory levels in advance of the year-end shut down and this adjustment will help finance purchases of this inventory. Ordinarily, GMAC pays GM the invoice amount for a vehicle shipped by GM to a GMAC financed dealer on the first business day after the shipping date. Beginning on December 9, 2008, GMAC will be obligated to pay GM the invoice amount when such amounts are due from dealers. As a result of this change in payment terms, GMAC will be able to defer payment until December 30, 2008 of up to $1.5 billion in cash due to GM. During the shipping period GM will have a security interest in the financed vehicles.

[thanks to Uncommon Sense for the link]

Robert Farago

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ChuckR on Dec 16, 2008

The Bush and Cheney gang - do you mean Barney Frank, Chris Dodd and Franklin Raines? Pigs both red and blue have fed at this trough. If you don't like it, vote anti-incumbent.

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CarnotCycle on Dec 16, 2008
The Bush and Cheney gang - do you mean Barney Frank, Chris Dodd and Franklin Raines? Pigs both red and blue have fed at this trough. If you don’t like it, vote anti-incumbent. Yes, when you look at the developments over a long span of time that led to these dark financial days (it took awhile to pull enough oranges out of the stack so it would fall) it most definitely is a bi-partisan effort. An excellent microcosm of how bi-partisan it is can be summed up in one firm: Goldman Sachs. That outfit has basically supplied ~75% of our Treasury secretaries through both quite partisan Republican and Democratic administrations. And no one can deny Goldman Sachs has enjoyed that connection, as evidence number one I point to the exhibit of its continued existence despite being one of the most adventurous firms when it came to appetites for exotic (read: stupid) financial products with no due diligence on the securities they were buying. Oh, and if you're net worth is less than at least $1 million (liquid net) or you don't have an Ivy League diploma (Harvard is an extra point by itself) you don't get in the door at Goldman. Only pigs that walk on two legs (all the better to get in the trough) need apply for an account at Goldman thank-you. An important caveat to being a commercial bank to glom TARP money? It doesn't have to be a bank for anyone but rich guys. Awesome! Chartered FDIC-backed hedge funds at last!

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