• Jul 13th 2010 at 8:27AM
  • 21
Another piece of General Motors' IPO puzzle has been solved: in spite of CEO Ed Whitacre's desire to add a captive finance arm to GM's operations, the company looks set to go without. Acquiring in-house financing always stuck out in Whitacre's aggressive battle plan for getting an IPO done later this year and the hurdles of getting back in with GMAC required untangling enough knots to make King Gordius say, "Skip it..."

Instead, GM will partner with banks that would make the loans to GM customers. Some of those banks are the same ones that GM is working with on a $5 billion credit line, and the idea would be that the banks offering financing would be presented as doing so under the GM banner.

At heart is that in order for GM to unlock its potential, and the potential of the new products it has rolling into showrooms, it needs to be able to finance more customers. Being at the mercy of banks who can choose their own risks means customers leave GM showrooms because they can't get financing or can get a better deal on another car. Also, GMAC won't lend to subprime borrowers. Although they only make up seven percent of GM's target borrowers, in line with other automakers, a seven percent of sales isn't a number you want to leave on the table.

[Source: BusinessWeek | Image: AP/Paul Sakuma/Getty]

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    • 1 Second Ago
      • 5 Years Ago
      GMAC was always a rip off. All other auto companies were honest when it came to loans. They really rip you off when you lease.
      No loss losing them rather use a good bank for a lease loan.
      • 5 Years Ago
      The way everyone is loosing jobs, etc where some are ranking up bad credit when they defult on credit cards, car loans, homes, etc,Any ways I would think there is far more then a 7% sub prime market out there now that will need sub prime loans to buy GM stuff if GM wants to move their new stuff off the show rooms..
      • 5 Years Ago
      Anyone care to share the King Gordius reference? I get what they are driving at given the context of the article, just never heard of this dude.
      • 5 Years Ago
      it's interesting about gm that when they owned gmac, it was the most profitable division of the corporation until the economy collasped.
      • 5 Years Ago
      In a 21 Century reality , which may assist more purchasers to have a more meaning full depth of importance and a personnel relationship and a more desire to mantain proper mantenance of their purchased vehicle during the car's loan and even after the loan is Paid in full , maybe to simply have filming's being done , especially focused on when a special order auto was been done , granted showing an auto at exact time it is beening made LIVE , may not be desired to be shown , for every robotic system made does do an erro at some point in time and needs repaired , yet imagine purchasers glory getting to watch how their auto is made from start to finish and being able to view all the quality and workmanship being done from a piece of sheet metal , it being stamped to auto's shape , formed in proper placements ,paint dipped , wired , assembled , exterior and interiors , tested and inspected and rolled off that assembly line ,placed onto truck and maybe even Dealerships filming of auto being rolled off delevery Trailer and Owner getting filming of Car or Trucks full glory being made and delivered to them . Why it may assist lots of nit wit purchasers to be more responsible and a stronger goal re-enforcement in them as to deiring to accomplish a date of Paid In Full goal ! ?
      • 5 Years Ago
      It went to keep them from going into chapter 7 and boring a bigger hole in the unemployment situation. Nrgative domino effect avoided or stopped.
      • 5 Years Ago
      Between my wife and I, we've bought 4 GM cars with financing arranged through the dealer. None of those loans involved GMAC. The finance person always found a local bank that had a better rate.

      With that in mind, whyshould GM bother having a captive finance company, if its dealers send customers to competitng banks?
        • 5 Years Ago
        Dealers make money for sending a loan to X bank on average around $500-1K and on average the finance company makes 7K on life of a loan. Bottom line is it all comes down to money and whose getting it...That is the reason mostly all major automakers have their own financing arms it adds profit to the bottom line...If GM wants to be profitable they need to have their own finance company... making X % on the sale of the car and making another 7-10K on the financing of the car...
        • 5 Years Ago
        And by teaming with banks, they'll get a cut of the financing profit without exposing them to the risks of defaults. Let banks vet loan applicants. Let the car company build cars. They both focus on their core strengths while working together to make more money. When the automaker gets too intertwined with their financing, they can push financing to accept unfavorable loans in the name of pushing product which leads to a downward spiral of over production and loan defaults.
      • 5 Years Ago
      I mean it is Government Motors!!
      Any way they can NOT make a profit will affect only us taxpayers!
      No big deal!
      Another Obama failure!
      • 5 Years Ago
      Rule #21 : Never buy a car on time. Always pay cash. Bank that payment amount every month as if you were buying a car.

      Where did GM get this 5 Billion that is in play?
      • 5 Years Ago
      GMs been a loser for years, why don't they just go away before they cost the American public any more money?
      • 5 Years Ago
      Where would Ford be without Ford Motor Credit? It will be interesting to see whether this works. In the past, FMCC would help sell cars with Red Carpet Leases and Ford would help FMCC by subventing finance rates. It is when both sides lost sight of profit that trouble and losses began. The big plus for GM is that they won't have to bet the ranch on leases that end three and four years down the road and as with homeowners, they find that they have negative net worth in the vehicle. Over the past five years, leased vehicles went to auction and when the gavel went down, all the manufacturers took immediate $5,000 or more losses on SUV's when the price of gas shot up. The other benefit is K.I.S.S., keep it simple stupid. A lot of the mix between the finance arm and the car builder will be left out and each can do what they do best without muddying the waters. Time will tell.
      • 5 Years Ago
      I'm not a business guru but it seems like the investor in GM is going to take a bath and the big winner is going to be the one with no investement at all "the government". The government has taken the money of the tax payer and doled it out at will. The government will end up owning most of GM at no cost to them. The government stands to be in charge of the company and as the largest owner will benefit from any profits made by the new GM. The taxpayer certainly will not get any of this profit but evidently it will flow to the governments coffers to spend as they wish. That's a pretty good deal for the government wouldn't you say. I wish I could find an investment deal like that. I think all large companies should take heed as to what is going on right now.
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