Bailout Watch 315: US Nationalizes GMAC
Now that the frog– fog of war is beginning to lift from the deal between the federal government and troubled auto and mortgage lender GMAC, a few key facts have emerged. First and foremost, Business Week (BW) reminds us that the U.S. Treasury’s $6b “investment” in GMAC leaves it as the lender’s largest shareholder. Not to put too fine a point on it, the federal government owns GMAC. Second, BW reckons that means a boardroom shake-up is on its way. “GMAC’s 12-member board of directors, of which [J. Ezra] Merkin is chairman, is expected to be clipped to seven directors. Cerberus has four executives on the current board, but will get only one voting director on the new board… GM will go from having four voting executives on the board to just one, nonvoting executive.” In other words, GM can’t manipulate GMAC to move the metal. Or can it? More [non-Dodge] ramifications after the jump.
“When the deal is completed, GMAC will have about $25 billion in equity. Its new capital structure helped the lender get approval to become a bank holding company. That gives GMAC access to Federal Reserve funds at more competitive rates so the company can make more loans and help GM sell more cars.”
Which means that the U.S. Treasury is, effectively, in the car business with GM. Again. More. But the rules will have changed– at least according to longtime industry watcher Maryann Keller.
“GM will still be able to run programs like 0% financing. But the company will have to compensate GMAC for the risk to any nonprime loans and incur all of the costs of any marketing program, Keller says.”
So GM costs will be higher. And that’s OK, because they can always go back to Uncle Sam for more bailout billions. Will do, in fact.
Bottom line: the feds are in this auto bailout business up to your eyeballs. Barack’s boys face a stark choice: let the domestics go bankrupt, sell off our shares of GMAC and draw a line under this mess, or keep pumping taxpayer money into domestic automakers and their suppliers and “improving” their business plans (GM – Chrysler merger?). Until they go bankrupt anyway.
If there’s a slippery slope towards nationalization of the domestic automobile business– the American Leyland scenario– we’re on it.
More by Robert Farago
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You've said it before, but one way or another they're going bankrupt. The only alternative I see is the remaining 2 fix their complete cost-structures, pay market-rate Total Cost/Employee to the UAW, *and then Boss Stalin and the KGB absolutely Crush the surviving bolt-tightener rabochiy into powder under the boot heel of pre-baked compensation and their fatcat administrative skim. -- Otherwise: Before you go all misty-pants over Ronnie+Co.: Remember that under Ron's watch, Paul Volcker used the Nastiest bit of Monetary Policy, maybe in US history, to end the late-70s/early 80s Stagflation, creating a relative Tsunami of Unemployment as a result. Like, Great Depression-scale Unemployment. -So it wasn't all great. +++Yes, psharnininininnnninjjian, I just criticized the Reagan Administration. ==>Happy New Year!!! (or whatever it is You People celebrate at the end of December; -you know, the last 31 days out of each 365? -if you do use 365 as your base day quantity for a 'year', and this is in-fact 2009 for you and not 7518 :P :D :D )
gsorter said: 1) The Federal governmnent income almost doubled from 1980 to 1989, from $244 Billion to $446 Billion due to Reagan’s tax plan, which can’t be blamed for runaway spending by congress Did you just conveniently forget about the national debt accumulated in that era? With that much money borrowed, and used as income, even an idiot can double the "income". If you make $50k per year, and you draw $50k per year from home equity, will your wife be impressed with your doubled income? Reagan is just another sub-prime actor.