GMAC rushes to conclude bond buyback and avoid bankruptcy
GM doesn't just have its eye on auto bailout funds -- its GMAC division (of which it owns 49%) is looking for cash from among the $700 billion pledged in the Wall Street bailout. Through the end of next year, GMAC has roughly $12 billion in bonds maturing. But to have any chance at getting Wall Street funds to address those maturing bonds, GMAC wants to become a bank holding company. And to do that, it must raise $30 billion, with $2 billion of that tapped from new sources.GMAC is looking for 75% of its bondholders to participate in a bond buyback, whereby a bondholder would return bonds worth $1,000 and get about $800 worth of bonds with a higher dividend in return. If it gets participation from 75% of it's bondholders, that will give it $28.5 billion, which it can add to $750 million GMAC says has been pledged by shareholders as part of the $2 billion requirement. That's not quite $30 billion, but closer is better than nothing.
The problem is that, for the moment, GMAC has only 25% participation. GMAC said it had a fresh round of bondholders willing to swap, but didn't make it clear whether that would get it to 75%. If it doesn't get the financing to become a bank holding company, GMAC would likely need to declare bankruptcy. And if that happens? Well, GMAC provides inventory financing for 80% of GM vehicles worldwide. Without that source of financing, said Martin NeSmith,"There's so many dealers on the edge, if GMAC goes out of business 30 to 40 percent of dealers won't be able to get financing from anywhere else." And that spells even more trouble -- and bankruptcies -- for everyone.
[Source: Automotive News - Sub. Req.]
Reader Comments (Page 1 of 2)
Sea Urchin 9:10AM (12/16/2008)
I few billions from TARP +34 billion +25 billion which was already given. All right D3, sticking it to the tax payer.
Reply
KLR 9:19AM (12/16/2008)
They haven't received penny one yet.
Sea Urchin 9:56AM (12/16/2008)
i HOPE THAT HELPS YOU
Frylock350 11:25AM (12/16/2008)
CAPSLOCK IS CRUISE CONTROL FOR COOL.
Mobius_1 9:10AM (12/16/2008)
Wow, the ripple about to go into overdrive... Is this going to be a slower version of 1929?
Reply
BigMcLargeHuge 9:15AM (12/16/2008)
Am I understanding this correctly that even if GM were bailed out, GMAC would have to pull off a hat trick of miracles as well for it to even matter to the dealers?
Reply
Menice 9:24AM (12/16/2008)
think its called
thowing good money down the toilet after bad.
or
not looking at the whole picture before making the deal.
KLR 9:25AM (12/16/2008)
GM is merely the minority stakeholder in GMAC. Whether or not dealers use GMAC for financing is up to the dealers. GMAC really got into trouble in the real estate sub-prime mess.
GM needs to trim their dealer network anyway but can't really do anything about it due to franchise laws. If a dealer can't get alternate financing they can merge with another or sell off to avoid bankruptcy. They are all independent businesses.
Reply
Sea Urchin 10:41AM (12/16/2008)
But financing is imperative to selling cars. I'll give you an example, my buddy has Civic, Honda gave him 4% interest, we went to a few banks and no bank gave him even 6%.
Point is now that GMAC is not unit of GM will be unable to offer competitive rates with that other automakers offer. Banks will never come close to rates that automakers offer. Selling GMAC was 3rd worst decision by GM, second worst was to even allow GMAC enter sub prime (lost another loan to Ditech) and the worst thing GM ever did was hire a criminal/ape/thief Wagoner.
Fernando 9:28AM (12/16/2008)
Hmm,
I've been using GMAC for a while and I'm debating pulling my money out and putting it on another bank, one that I trust. It might help them to fail, but my money is more important, even if it is FDIC insured.
Reply
ed 9:33AM (12/16/2008)
More troubles from GM, how can they expect me to get a new Malibu or VUE if their future looks so cloudy. What will happened if they keep getting in trouble? What will happend with my warranty or the value of vehicle? I think I'll buy my next car (in about 2 weeks) from Major Appliance Corp. also known as Toyota.
Reply
KLR 9:43AM (12/16/2008)
This is GMAC, not GM - yes, there is a difference.
And just so you know - Toyota is projecting an operating loss of about 100 billion yen (over US$1 billion) for the second half of their fiscal year.
Josiah 10:01AM (12/16/2008)
A $1 billion loss is nothing compared to GM pissing away $100 billion in the last 5 years. In fact a $1 billion loss sounds downright impressive given the current situation.
ed 10:32AM (12/16/2008)
Problem is, my local Chevy dealer is giving me the best rate possible (trust me I've shopped around) but it's through GMAC. So if this bank is not doing so well and so is GM then do you still think I should consider it?
Frylock350 10:45AM (12/16/2008)
Ed who is your insurance provider? I got a very good rate financing through State Farm to buy my Suburban.
KLR 10:54AM (12/16/2008)
GM is also piloting a program with credit unions. Right now it's just in MI, OH, IL, and IN (if you're eligible to open an account somewhere in one of those states, go for it) but may spread if all goes well, and Ford and Chrysler are is discussion with the credit union league on it.
http://www.lovemycreditunion.org/
Judy Zik 9:56AM (12/16/2008)
Harsh medicine but maybe not as bad as it sounds GM and the Government needs to step back and do nothing. GMAC has been a big money drain for GM lately. If it went under that would be one less cash sinkhole. If it did go under the strong dealerships would survive but you would have a wave of defaults killing of some of the weaker ones. GM could easily be strengthened longterm by losing 30-40% of it's dealers. Consolidation would happen in over saturated markets and the franchises could be sold to new blood in under serviced markets. Assuming Cerberus let's it happen once the dust settles a bankrupt GMAC could be one of the things that saves GM.
Of course the 3 headed dog is an investment firm for people with a huge amount of money and influence. They could probably take the money needed to save GMAC out of petty cash but I expect they will use their political friends to get the American taxpayers to pony up instead.
Reply
Samurai Jack 12:33PM (12/16/2008)
Don't think for a moment that this conversion of GMAC to a bank holding company isn't being driven by Cerberus. As 51% stakeholders it couldn't happen without their approval.
This is just the latest example of corporate cronyism facilitated by the current administration. Companies that are not in financial distress are repositioning themselves as banks so that they can profit from the TARP funds. American Express did this last month, now it's GMAC. It's a covert fleecing of the taxpayer and it needs to be publicized.
KLR 1:42PM (12/16/2008)
Oh, without a doubt it's being driven by Cerberus. When GM and Cerberus were talking about a Chrysler deal Cerberus wanted to keep Chrysler Financial and wanted GM's entire share of GMAC while giving GM Chrysler's auto ops and cash on hand. GM would've been screwed big time if they had taken that deal.
dougjp 10:01AM (12/16/2008)
Investing money with x, buying a car from y, all major decisions with huge personal future ramifications.
I don't believe anyone can give definitive advice, each person has to assess their risk tolerance, and without question there has been more than enough information out there for a long period of time in order to do this. What can you afford to lose?
I'd only add that, if it "hits" the fan, then nobody will be interested in listening to your tale of woe...
Reply