By on March 17, 2010

In their latest report, the Congressional Oversight Panel suggested that GM’s formerly captive finance arm GMAC shouldn’t have been split from the automaker it still supports. If this led you to believe that GM would take the troubled finance firm back under its corporate wing, you have another thought coming. The WSJ [sub] reports that

The idea appealed to GM, in part because auto maker would have more control over lending practices. GMAC’s move in 2008 to dramatically restrict leasing amid the U.S. financial crisis helped trigger the spiral that sent GM into bankruptcy the last year… But taking over GMAC would have many complications. GM sold a majority stake in GMAC in 2006 as a way to buck up the auto maker’s credit standing and its access to capital. As it turned out, GM still remains largely cut off from the markets.

Where does this leave GMAC? In big trouble and and at the mercy of the taxpayers, apparently. The WSJ [sub] points out that GMAC’s ResCap unit remains the major stumbling block to a successful IPO for the firm. Other trouble points: GMAC’s decision to launch an online bank, called Ally. According to the CAP report, online banks “have not had a history of success.” Also, the possibility that GM could create a new captive-finance arm. If that happens, and since GMAC is struggling and GM won’t take it back it seems likely, GMAC’s consumer and floorplan financing could be stuck in the subprime ghetto, servicing such marginal automakers as Chrysler and Saab. That’s more bad news for the worst beneficiary of the Detroit bailout, and by extension, bad news for taxpayers.

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7 Comments on “GM, GMAC Go Their Own Ways...”

  • avatar

    Is that Billy Mumy in the pic?

  • avatar

    “ResCap” was their major undoing – mortgage financing – they went down the whole sub-prime thing and really hurt the company. And GM really was fortunate to have spun off GMAC before the sub-prime mortgages really died. The auto financing business is bad (especially when the auto business is bad) but access to credit is the lifeblood of this business.

    The “Ally Bank” thing was done so that GMAC could benefit from the TARP – which extended “help” to banks.

    I find it amusing that when I read the fine print on Chrysler advertising – the GMAC name is there.

    Remember, Cerebus is at the root of GMAC and anything which helps GMAC helps Cerebus. How ironic that money-wizards like Cerebus are tangled up in the mess called GMAC. At least they extricated themselves from auto design and manufacturing (Chrysler).

  • avatar

    I can’t understand why GM didn’t just sell off the real estate arm to Cerberus when Rescap was still going good. Since the real estate bust, I can’t understand why the geniuses at Cerberus didn’t spin off Rescap at a huge discount so it could attract bargain-hunter investors, and return GMAC to its auto roots. Had Cerberus done the latter pre-bankruptcy, they could have combined GMAC with Chrysler Financial and branched out into “non-denominational” used car financing.

  • avatar

    The only houses I have seen in my little town with “foreclosure” signs in front of them are being listed by… GMAC Real Estate. My assumption is that the mortgages were originally held by GMAC.

    • 0 avatar

      In ’99 GM bought a company called Ditech which allowed them to lose money faster with real estate loans than they were able to lose with just auto manufacture. The last I read in recent news about GMAC, it had billions in losses. I’m not sure how loaning money on GM and Chryco vehicles is supposed to help. Prediction of residual values is now done with a ouija board. As lay offs spread, even clients with pristeen credit are abandoning underwater home loans. Can walk aways from auto loans be far behind?? Is the current GMAC only another government subsidy to GM and Chrysler, as local banking institutions shun their business?

    • 0 avatar

      Actually, GMAC Real Estate was formerly known as Better Homes and Gardens Real Estate, which is a franchised real estate brand such as Century 21, Coldwell Banker or RE/MAX. GMAC purchased this business in 1998 from the Meredith Corporation, publisher of Better Homes and Gardens magazine.

      GMAC may be using this sales channel to move foreclosed properties, but these real estate agencies have been around in my part of the country for a while.

    • 0 avatar

      Gasser –

      As much as I hate the idea of strategic foreclosure, and fully believe that when you enter into a contract you should make good on your promises, the idea of walking away from underwater auto loans is nothing new, and is well known at most dealerships.

      Now, your salesman will most likely never recommend that you simply let an underwater trade go the way of repo, as doing so is illegal in most states, but when faced with a customer who is desperate to get out of a vehicle for whatever reason, is so underwater that they can’t trade out of it without money down they don’t have, and who hasn’t let the payments get so far behind that they can’t get a new loan, it isn’t uncommon to hear the phrase ‘Well, we can’t do this with the amount you currently owe on your trade, but would you still be interested in buying the new car without trading in the old one? (wink wink, nudge nudge)’.

      Is it a bit slimy? Sure. Would the customer likely be better off just sticking it through to the end of their current loan, or at least until they have equity? Again, sure. However, at the end of the day your local car dealer isn’t your financial advisor, and if someone is adamant about following a self-destructive path, the dealer isn’t going to say no on principle.

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