Let’s review. GMAC was GM’s “captive lender,” a wholly-owned subsidiary of the artist once known as the world’s largest automaker. You want a loan or a lease at a GM store? GMAC did the deal. It was a cash cow– until it started writing a lot of sub-prime/bad paper in both its automotive division (to keep GM’s cash flowing) and its ResCap mortgage unit (just ’cause it could). When GM CEO Rick Wagoner was looking for a way to keep his job (i.e. dress-up GM’s books with asset sales), he sold 51 percent of GMAC to Cerberus, a private equity group. [NB: Wagoner claimed that he did so to help GMAC’s credit rating. Yeah, that turned-out well.] Cerberus had recently purchased Chrysler, and Chrysler Financial Services. TTAC (and others) reckoned Cerberus would jettison Chrysler’s car-making ops (one way or another), combine GMAC with Chrysler financial and proceed with the business they know and love: finance. When the shit hit the fan for Chrysler– about ten minutes after Cerberus bought the company– Cerberus tried to swap Chrysler for GM’s remaining share of GMAC. Uncharacteristically, GM said no to a stupid idea. When the things got REALLY bad, Cerberus tried to sell ITS share of GMAC BACK to GM. Again, GM passed. And then things got worse…
When GMAC took a bath on leasing, it raised its rates and, effectively, got out of the business. This didn’t help GM. Now that “normal” auto loans are also a drug on the market, Chrysler-controlled GMAC has decided to shore-up the sinking ship by tightening-up its credit requirements. Which won’t help GM. As in all the dealers are, out of necessity, switching out of GMAC to survive. BUT the damage has been done. While Toyota’s hyping zero percent finance deals, GM has developed a rep for not being able to offer people car loans. So…
GM has decided to promote the fact that GM customers can still get attractive finance rates… with someone other than GMAC. Automotive News [sub] reports the GM yes-you-can-still-get-a-deal’s going down. “General Motors, in the wake of lending restrictions by its partially owned finance unit, will begin an advertising campaign reminding consumers that they can still finance vehicles through GM dealerships. GM’s national dealer council learned about the plans during a 30-minutes conference call with GM officials today….
“The upcoming campaign puts GM in the position of steering dealer customers to financing channels other than its 49-percent owned GMAC affiliate.” Talk about splitting the difference between a rock and a hard place. If GMAC can’t get a hold of federal bailout bucks to save its skin, and goes belly-up, even GM’s 40 percent ownership is enough to take The General down with them. Correct me if I’m wrong.
GMAC was invented by Alfred Sloan to assist GM to sell vehicles when banks and other financial institutions of the time were refusing to lend money for vehicle purchases.
Subsequently GMAC (captive finance controlled by the manufacturer) was emulated by every other manufacturer in North America.
Now there are manufacturers doing exactly what GM did years ago with GMAC, using “in house” financial services as a powerful “lever” to bolster marketing and increase sales.
The upcoming campaign puts GM in the position of steering dealer customers to financing channels other than its 49-percent owned GMAC affiliate.
Why would sending customers to other finance channels be any better? Correct me if I’m wrong but wasn’t GMAC giving out loans to just about anyone when other lenders wouldn’t. Did they some how flip flop now that the credit situation has gotten worse. The way I see it if they lost their captive finance arm to give out those “loans to anyone with a pulse” so they could keep their sales up, they are screwed. Why would someone else take on that risk, especially now.
Any GM dealers out their qualifying people with not so good credit through other lenders.
Robert can you explain how if GMAC goes belly-up it will bring down the whole GM ship. Wouldn’t that be like the Delphi bankruptcy, isn’t GMAC seperate but part owned by GM.
My wife’s GM lease ran out and I had to replace her vehicle. Couldn’t lease through GMAC. Third party leases cost almost as much as buying. Ended up financing at our credit union at 4.5%APR.
Actually, steering prospective buyers to outside financial sources is a good idea. It is referred to as indirect lending and the dealer usually gets a “finder” fee for sending qualified buyers to these lenders.
It would be possible for GM to try a universal lender for all GM dealers like a nationwide money center bank (think Bank of America or Citigroup) but it would make more sense to have the F&I guy (gal) at each dealership establish the relationship with a local lender. This way, the dealer gets the fee which is additional revenue that I am sure most of them could surely use.
As for GMAC, GM could end it and either sell the receiveable to raise cash, probably at a big discount unfortunately, or just let the loans pay themselves out and offer no more financing.
So once again GM will compete against itself to make a sale with negative gross profit. I’m certain there is a clause in the agreement with Cerberus that prohibits this kind behavior with GM and GMAC.
How humorous would it be to see that clause trigger a forced rebuy of GMAC by GM?
GMAC was started by Billy, not Alfred.
Do you think these other lenders will finance 130% of the MSRP at 0% for 72 months on a new GM car for me?
AN also has a piece on how the captives are working to lay off their bad paper on the TARP (taxpayer).
Cerberus and GM may yet live to have the last laugh on this one.
“they can still finance vehicles through GM dealerships”
Sounds like a proposal for chaos, given dealers will probably have different senarios with their local banks, credit suppliers, etc.
Could some locales with bad credit environments not offer any financing at all?
I dont claim to be following this side show circus that is GMAC very closely, but sounds like a game of brinksmanship. Cerberus is putting a gun to GM’s head so they will Merge with Chrysler or Buy back its share of GMAC. Either way, Cerberus gets rid of one of its toxic assets. Funneling new auto loans through other sources seems to be GM’s only way of fighting back, perhaps indirectly admitting that GMAC is now fodder for Bankruptcy lawyers and accountants.
I’ve never bothered with financing a car before, but I was always under the assumption that it was smarter to get a loan through a bank or credit union anyway.
truthbetold37: My wife’s GM lease ran out and I had to replace her vehicle. Couldn’t lease through GMAC. Third party leases cost almost as much as buying. Ended up financing at our credit union at 4.5%APR.
Was it a GM car?
If it was then, at least in your case, this works for GM. If not, then not so much…