GMAC Needs More Loan And Lease Subsidies To Survive

Edward Niedermeyer
by Edward Niedermeyer

Having recently posted a nearly $5b loss, bailed-out auto finance giant GMAC says it needs more help from automakers to remain competitive. Automotive News [sub] reports that GMAC CEO Mike Carpenter told reporters that “the success of GMAC Financial Services hinges on more loan and lease subsidies from General Motors Co. and Chrysler Group,” and that “GMAC requires additional marketing funds from the automakers to provide competitive loans and leases to the GM and Chrysler dealer networks.” GMAC’s Chrysler business has nearly doubled in the last quarter of 2009, now providing about 26 percent of Chrysler’s retail financing and about 30 percent of GM’s.

And as if GMAC’s request for more assistance from the bailed-out automakers weren’t troubling enough, Carpenter also indicated that GMAC can’t compete for business with customers who enjoy excellent credit ratings. These customers are being offered terms by cash-rich banks that GMAC simply can’t compete with, forcing it down the ladder to service the less credit-worthy portions of the market. Which is a large part of what caused GMAC to get into so much trouble in the first place.

On the floorplan financing side, GMAC provides 91 percent of GM’s dealer floorplan financing and 77 percent of Chrysler’s. Both Chrysler and GM have recently sworn off volume-boosting incentives and subsidies on the retail side of the business, but GMAC’s struggles indicate just how much pressure there is to keep such profit-sapping incentives. Subsidized leases present a particular danger, as they not only reduce profit, but can have sharply negative effects on resale value, another factor leading up to GMAC’s near-bankruptcy and government rescue.

GMAC’s request for more assistance with loan and lease subsidies, as well as more credit-deal-related marketing spend shows how dangerous it is for the bailed-out automakers to be relying on a bailed-out financier as a quasi-captive lender. GMAC was hitched to the automakers as a convenient source of credit for their reformed but unproven business models, and its own weaknesses are pressuring those automakers to go back to old, bad habits. Who would have thought that building a three-legged stool out of three failed businesses would ever lead to this?

Edward Niedermeyer
Edward Niedermeyer

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  • PrincipalDan PrincipalDan on Feb 12, 2010

    @RNC +1 I realized this myself when I saw the much better rates I could get from my Credit Union on my last automotive purchase. About 5 years before that when my credit was in the toilet, Ford Credit was about the only place I could get financed, fortunately it was still fairly reasonable, I needed the car cause mine had just been stolen and recovered completely stripped.

  • Late_apex Late_apex on Feb 14, 2010

    I firmly believe that my idea for a year round snow cone business in Alaska could be successful with proper subsidies to provide free hot coffee with purchase. The coffee will cost me $2 a cup and I plan to sell the snow cones for $1. The success of this business would be directly related to these subsidies. I have serious doubts any private financial institution will invest in this idea and now feel that it is the responsibility of the government to support me. After all, Alaska has too much ice to fail.

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