• Jan 4, 2009
The Wall Street Journal puts forth the case that the government's $5 billion lifeline to GMAC has given GMAC a competitive advantage compared to its rivals. After the taxpayer cash was received, GMAC dropped the required credit score to get a loan and began offering 0 to 6% on a host of others. While doing so, it admitted that "without this [loan] . . . we would not be able to do this today."
The Journal cries foul, saying that because GMAC is essentially doing this with -- or at least, because of -- government money, "the feds have now put the muscle of the state behind one company's products." The Journal also considers that the government might do what it can to make sure the horses it bet on win the race, saying "the Washington temptation will be to take other steps to help the two companies gain market share at the expense of their private competitors."

As to the issue of granting the loan to GMAC at all, the government didn't have much choice unless it wanted its previous investment in GM to potentially get flushed by a GMAC bankruptcy. As to 0 APR, the same as the 2009 Ford Taurus SEL AWD.

Will the government try to otherwise help GM and Chrysler (beyond pushing more money their way)? The airlines got $15 billion after 9/11, yet would anyone accuse the government of otherwise aiding the industry? As to intervention in the free market... well, when was the last time the market was truly free? And Does GMAC's ability to offer the new incentives give it a competitive advantage over the other companies? It only lasted until January 5th, and some GM dealers did say they were moving metal -- but if the benefit really was that lopsided, we're sure those competitors will let us know about it soon enough.

[Source: Wall Street Journal]

As to the issue of granting the loan to GMAC at all, the government didn't have much choice unless it wanted its previous investment in GM to potentially get flushed by a GMAC bankruptcy. Regarding the 0 APR, the same as the 2009 Ford Taurus SEL AWD.

Will the government try to otherwise help GM and Chrysler (beyond pushing more taxpayer money their way)? The airlines got $15 billion after 9/11, yet would anyone accuse the government of otherwise aiding the industry? As to intervention in the free market... well, when was the last time the market was truly free? And does GMAC's ability to offer the new incentives give it a competitive advantage over the other companies? It only lasted until January 5th, and some GM dealers did say they were moving metal -- but if the benefit really was that lopsided, we're sure those competitors will let us know about it soon enough.

[Source: Wall Street Journal]


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  • 18 Comments
      • 6 Years Ago
      The Journal is absolutely right, and you're utterly naive to believe that the federal government isn't giving GM an advantage. They're giving GM the opportunity to continue operating in the same, futile way they've been operating before.

      This is like the drunk begging for five dollars for a meal, then turning around once he gets it and going straight for the MD 20/20. You excuse this by saying that the markets weren't "truly free" before. But that's naive because the lack of freedom in the markets that got us into this mess was the result of the very government policies, the federally mandated lending policies of Fannie Mae and Freddie Mac and the easy money of the Federal Reserve in particular, that got us in this mess. In short, you've decided that because drunks always elect to go for the booze, we should give the guy the MD 20/20 so that he doesn't even have to beg.

      You ought to wake up and realize that none of this federal money does anything to rescue any of these automakers, nor is it designed to. It was designed to keep them alive until after January 20th. To keep them alive for any length of time will require either permanent life support or enormous recapitalization - say, $100 billion just for GM. When three companies, as have GM, Ford, and Chrysler, burn through a half trillion dollars of capital in fifty years - which is exactly what they've done - they don't get saved by a palty $25 or $35 billion.

      But, if you want them to have money - there's way for you to put your money where your mouth is. Go out and buy a GM car.

      I hear they're offering zero percent on their real dogs. So, go for it.
      • 6 Years Ago
      The GMAC bailout hurts all the other car companies, but shouldn't the CEO get a cap on his pay if the goverment is paying to bail them out?
        • 6 Years Ago
        I am with you NotYou, congress seems to be giving all the money to the big companies, GM needs to make better cars, because it really doesn't matter how much money they get if nobody is buying the cars.
      • 6 Years Ago
      It may be true but I think the perception to the general public that Ford is stronger and self sustaining is worth it. In the long run consumers (or taxpayers) may be more apt to give their money to a company that will give them some somthing in return, in the case of Ford a car to drive versus nothing. Many people also still refuse to drive a Japanese car and when they shop they only shop Ford, GM, Chrysler leaving Ford their more attractive choice.

      Most of the country is pissed that GM got the money, Ford just needs to keep telling everyone they didn't take their tax dollars.

      Living in the Detroit area its interesting to talk with friends in the industry some of which are line workers some sales people and hearing the different stories. One friend works at the Rouge plant building F-150's and is working 3rd shift and overtime. Another works at Lake Orion, home to the Malibu and G6 and has been laid off for 4 weeks working a 2nd shift. Salesmen are saying the same thing. Ford dealers have been quite busy since Christmas while many GM dealers are getting by and Chrysler dealers are twiddling their thumbs, hoping they can come to work the next day.

      Maybe that thinking I spoke of is what is going on here in Michigan?
      • 6 Years Ago
      GMAC - one finance arm of the car companies (GM and Cerberus) owned by the US Government is extending 0% financing because of the loan they got from American taxpayers.

      I'd say that the ability to offer that 0% financing puts GM at a distinct advantage over Ford. Wouldn't you?
        • 6 Years Ago
        Noidor,

        But now that Bawney Fwank et.al. are in with American Taxpayers money, they'll leverage it. Ford will never be on an even footing again.
        • 6 Years Ago
        The 0% isn't that good a deal. You have to give up the roughly 10% "red tag" discount to get the 0% anyway.

        But I agree it does seem like an unfair advantage for GMAC over Ford credit.
        • 6 Years Ago
        It does seem like an unfair advantage in short-term, but in longer term I think Ford will have less crap products and less crap loans on their hands. Let GM do what it has always done and what led to its near-collapse, which is chase volume anyway they can!
      • 6 Years Ago
      There certainly is a pro-bailout slant to many of the recent articles in Autoblog. Quite frankly, why aren't you writing about the business decisions that got the big three into the position they are today? The leadership of those companies over the past two or three decades has put these companies in the position they are in now. Why do they deserve my taxpayer money? Everyone said that the world would end if the financial institutions didn't receive a bailout. Guess what? The bailout money isn't being used for loans in most cases. That bailout has done nothing good for this country. The auto bailout will also do nothing good for the country or the auto industry as a whole.
      • 6 Years Ago
      So, it may be a couple years since my last economics class, but can ANYONE explain the following?

      The emergency financing from the US government to GMAC was actually the US Gov't purchasing preferred stock in GMAC that requires an 8% dividend, paid quarterly (I think?) to the US Gov't. So GMAC now has the loan, but has to pay 8% on it. Now they've turned around and are offering that money for car loans to subprime borrowers at 0% financing (for some cars, others are 1%-6%).

      Now here's where my math starts to get fuzzy. If GMAC is borrowing money at 8%, and lending it out at 0%, how is this a viable business model? The only thing I can think is that they'll have to start chipping away at their principal in order to pay for the interest, which is exactly what was wrong with homeowners taking out HELOCs to pay for their mortgage bill each month.

      Any economists out there want to try to explain this one?
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