Fed grants GMAC bank holding status
GMAC – and ergo General Motors – just got another Christmas present: the Federal Reserve has granted GMAC bank holding status. GMAC has billions of dollars of bonds coming due over the next 12 months, but doesn't have the liquidity to cover the obligations. As of last week, the financing company was in the midst of a bond buyback effort in order to raise enough money to qualify for bank holding status. Now that it's been granted, GMAC can tap the Troubled Asset Relief Fund intended for financial institutions, pay its debts and (probably) avoid bankruptcy. It isn't clear, however, whether or not GMAC actually raised enough money through the bond buyback. The Fed said "emergency conditions" justified its actions, which makes us think the Fed just said "Here, take it." Looked at from a dealer perspective, it makes sense: if GMAC had gone under, one dealer estimated that it would have taken 30-40% of GM dealers down with it, and that could imperil GM itself. It wouldn't make much sense to let that happen when the government just loaned GM a bunch of money to stay in business.
And while GM is still a long, long way from getting the kind of money that any number of banks have, it's still beginning to add up. As a result of the new status, both GM and Cerberus are required to lower their stakes in GMAC. Cerberus has been told to lower its share to 33%, down from 51%; GM has said it will go below 10%. As for Cerberus' other headache, Chrysler Financial, it has said that if dealers don't stop making a run on its funds, it will cease financing for dealer inventories.
[Source: Yahoo!]
Reader Comments (Page 1 of 1)
Jeff Johnson 8:13PM (12/24/2008)
Meh -- i dumped my small cache of GM stock this morning - i only initially invested 500 dollars - got 226 dollars back. whatever.
I really don't want to see them go bankrupt, but it really is for the best. I got out now just in case they fall apart and re-issue common stock.
I am now rooting for Ch 11 - so they can ditch the union for good, ditch all the retards in management and come out lean and mean, and finally do something worthwhile.
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scott 7:40AM (12/25/2008)
Foolish man
Noidor 3:17PM (12/25/2008)
Scott - I wouldn't call him a "foolish man", he played, got burnt a bit and understands what needs to happen. You just pretty much wasted bandwidth with your comment.
GMAC can get all the funds it wants, but it won't get people to buy again because most people are already over-leveraged and getting deeper into debt on daily. So it won't do anything other than prolong its collapse. Their exposure in mortgage market is still huge, worst has not come yet, and government guaranteed debt (bonds) will not be an incentive for anyone other than the vultures to take advantage of. GMAC will give bad loans, and not care because government will always back it up. All it does is pump more toxicity into market, and devalue worthwhile assets.
Furthermore, government is turning into a holder of toxic debt, its mark-to-market value is decreasing lower by each passing day. And there is no way in hell they'll ever see a penny of it, and it's going to be funny to see when US defaults on its own obligations. Mind you it hasn't done anything to better the situation, all its done is further worsen moral hazard, and take away risk from loans, investment, and so forth.
Sea Urchin 8:22PM (12/24/2008)
Bailouts galore. I was somewhat supportive of bailing out manufacturers but this is too far. If people want to buy a car they need to go to the bank, if bank refuses to lend then that means you can not get a car, get a used one, borrow from relatives, put out more often, do whatever you want but keep me (taxpayer) out of it.
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TBlueMax 9:52PM (12/24/2008)
Most people harbor a misperception of what, exactly, GMAC does. Consumer lending for individuals to finance cars through purchase or lease comprise only a small fraction of their total operations.
From the post, "Looked at from a dealer perspective, it makes sense: if GMAC had gone under, one dealer estimated that it would have taken 30-40% of GM dealers down with it, and that could imperil GM itself."
It isn't the consumer lending aspect that would have taken down all these GM dealers. GMAC provides low-interest loans to car dealers to purchase the cars that sit on the dealer lots. Without financing from GMAC for a dealer to purchase these cars from GM, the dealer would not have any cars sitting on their lots for consumers to purchase. No cars = no dealer.
Oddly... if GM wanted to cut the number of dealers across the nation, this would be one terrible way of accomplishing that goal. The only problem (well, not the ONLY problem) is that the dealer network would not be uniform across the nation. Oh well, one battle at a time.
As if the car sales slump wasn't bad enough, GMAC was also heavily involved with consumer lending for mortgages and we've all seen what happened when the housing bubble burst.
Whether or not you want all these bailouts to take place - there would be some rather catastrophic consequences if these entities failed.
MoonRover 4:24PM (12/25/2008)
TBlueMax,
Thank You for shedding some light on this issue, GMAC was/is much more than an auto financing corp. they like other lenders were 1st, punched by the housing bubble and 2nd, hit by the eroding economy. The larger lenders the main culprits were thrown the first life rafts leaving housing lenders of a smaller scale to struggle for shore, many didn't or won't make it.
The fact that GM could not get the financing from GMAC that both Ford and Toyota had with their financing arms, has been the biggest problem for the corporation. Now that GMAC has been given banking status you will see GM's sales improve. To those that believe lots of people default on auto loans, well, this is just not true, the number of cars repossessed due to non-payment default is actually quite small.
What some may not know is this, GM has already scaled back production plans(10.5 million autos) and the UAW has made concessions that will make them competitive even if the economy doesn't improve and auto sales remain at 11 million for the next two years..........and remember this, until this debacle involving the banking industry and the inability to secure auto loans, GM was reporting smaller sales loses than both Ford and Toyota. We are living in difficult times but I fully expect to see GM around for a long long time. The future of the country in inextricably tied to its industry, simply put we cannot afford as the worlds only super-power to let it fail.
dougjp 8:33PM (12/24/2008)
This is the last straw, what's the point any more. That sickening thunder sound in the distance is business pigs racing to the trough. With rules being broken left and right and money available to any 'well connected' voice, regardless if they qualify or not, saying no to any kind of business now that asks will be called discrimination.
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Sea Urchin 8:41PM (12/24/2008)
This is the last straw? Did you read the papers today, ethanol makers are asking government for
#1 More Money
#2 Few Billion dollars in loans
#3 Want Congress to increase % of ethanol in every gallon of gas to 10%.
The funny part in all of this, GM has been the biggest pusher of ethanol in USA. So in many ways GM got way more than what Bush threw them.
While Honda is investing into Carbon Fiber, so they can make their product better, GM invests into something that will require the rest of the world to change to the "Wagoner way".
cdwrx 9:14PM (12/24/2008)
Wait, doesn't GM need to lose dealerships?
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EndOfNose 9:16PM (12/24/2008)
It has never occurred to me that a creature meant to guard the gates of Hades, err, I mean, the US Auto Industry, might suffer so much itself. I guess creatures of this realm are meant to suffer.
Where's Hercules when you need him?
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notYou 8:11AM (12/25/2008)
It's even worse than that - do you why Cerebrus guards Hades?
It's not to keep people out, it's to keep the people inside from ever escaping*.
That is not a typo. Think about it. Where are we now?
(* technically, that's anyone who ever crossed the river Styx, but you get the idea)
Nick 11:22PM (12/24/2008)
Just die GM. Just die
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rip 11:19AM (12/25/2008)
Hey Nick....I think you should go into your bathroom,take a good healthy crap,smell it,and like it.
MoonRover 4:31PM (12/25/2008)
Nick is Senator "Mercedes"Shelby's youngun'.
bakka 7:29PM (12/25/2008)
It does not matter what anyone on AB thinks of GM.
Fact: If that puppy goes down everyone on AB and anyone else we may know is going to FEEL it!
It will make a BIG BANG.
redcars 11:47PM (12/24/2008)
This just shows the depths of the trouble these two are in. Through their mismanagement, they are imperiling Ford who could possibly make it without a bailout and possibly disrupt operations at the transplants if they take the supplier network down with them.
That's why I scoff at the people that think it's a simple matter of giving them a $25 billion bailout, and all will be fine. It's usually those people calling everyone else stupid! #1) There's no guarantee that they'll be saved. #2) There's no guarantee that it will stop at $25 billion. #3) There's going to be restructuring - people will lose jobs or make concessions. It won't go back to business as usual.
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AZMike 12:56AM (12/25/2008)
looks like there's a lot of misinformation out there.
first, Chrysler Financial isn't exactly "Cerberus' headache". unlike GMAC, Chrysler Financial stuck with vehicle financing, and did not venture off into silly things like real estate companies and mortgages. automobile repossessions are up, but nowhere near what we are seeing in the housing market.
only about 30% of Chrysler dealers floor with Chrysler Financial, so this is not an issue, either.
any bank or financial institution that does flooring for any dealer DOES NOT provide them with "low interest loans for inventory"...unless you call "low interest" 12-15%.
the FDIC's requiring GMAC Bank to lower Cerberus' stake is a very good thing. this will eliminate the current stranglehold they have on GM, and will hopefully put this silly GM/Chrysler merger to rest once and for all.
lots of lip flapping here about this "bailout"; of course, the information about this is about as inaccurate as the loan guarantees Chrysler recieved back in 1980. first and foremost, they have to pay the money back. it should also be pointed out that both companies, as well as Ford, are incredibly viable companies. anyone who doesn't think so has absolutely no grasp of the automobile business.
many seem to think that the issue is the "undesirability" of domestic cars. this has absolutely nothing to do with the ONE SINGLE ISSUE: there is no credit available, period. it's rather difficult for a person or business to buy vehicles when no one will lend them money.
in case you don't know, your own credit score has changed drastically. mine dropped over 70 points for absolutely no reason. the three credit companies are in cahoots with the banks; when your credit score drops, you can no longer qualify for anything. raise the standards+lower credit scores=no one getting credit.
I was just talking Tuesday with a good friend who is the General Manager of a large dealership here in Arizona. first of all, his credit report shows 60/0/0. this means 60 accounts paid satisfactorily, nothing late now, nothing late, ever. all in all, a perfect credit score. it used to be a 780, which put him in the top 1/2 of 1% of all Americans creditwise.
today, his credit score is 667; nothing changed in his payment habits. what did change, however, is what the banks did to him. first, the three credit cards he has dropped his limits from $20,000-$30,000 range, each, to his present balance, right around $2,000, each. so now, instead of barely having a balance as opposed to the limit, he's now charged to the limit. interest rates have gone from 9% to 22% for no reason. his $200,000 home equity line of credit has been cancelled. again, points are removed from your score when the words "credit line closed by subscriber" appear on your report. it's like being guilty until being proved innocent. this is not unusual; it's happening to millions of Americans right now.
vehicles would be flying from lots today with just the simple addition of available credit. let's hope this gets thru to our President-Elect; I want a new SUV!
AZMike
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Ben 4:30AM (12/25/2008)
Same for me!!! I used to have a near perfect credit score, and have always payed off my bills every month. My banks have lowered the limits on my credit cards by 60% and increased my interest rates. WHAT THE HELL. I'm one of the good guys here and not one of the delinquents or people who use the system and overextend themselves. I don't think it's wrong to expect to be treated as such.
Rick 12:13PM (12/25/2008)
Hopefully the new credit card regs just passed by Congress are just the start. But I don't like the idea of waiting until 2010 for them to take effect, this is just catering to the banking and finance special interests. But the consumer needs more protection. The other thing that needs to go away is the Check 21 regulation. The middle class just got the shaft on the 'float' they depend upon. Of course, the banks are still allowed to cash a check at 2 AM on a Sunday morning, but your deposit gets held for days until they can verify funds.
Frank 7:31AM (12/26/2008)
Boy, Farago over at The Truth (Lies) About Cars must be pissed. They've been rooting for a GM bankruptcy. After Bush gave GM the bailout money their last hope for a GM C11 was GMAC having to file. That would have taken GM down with them. They were gleefully following the attempts of GMAC to be designated a bank so they could get TARP funds. They were hoping they didn't make it.
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