Once upon a time, GM’s captive finance unit GMAC was the engine of its success, pouring billions and billions and billions of dollars into the General’s corporate coffers. At some point, the tail wagged the dog: cheap credit and lax lending practices fueled an unsustainable growth in new car sales. A bubble that recently burst (in case you hadn’t noticed). Meanwhile, GMAC’s mortgage unit ResCap pursued the same no-loans-barred policy, only worse. Then, in his endless (seemingly, at the time) pursuit of propping-up GM’s bottom line with asset sales, CEO Rick Wagoner sold 51 percent of the soon-to-be-troubled finance unit to, of all people, Cerberus (owners of Chrysler and Chrysler financial). Which brings us to today’s GMAC, which is about to go tango uniform, hoisted by its own retard. The only way out: change itself into a bank and scarf some major bailout bucks. Only there are rules for that sort of thing…
“To become a bank holding company, GMAC must meet a minimum standard for capital defined by the Treasury Department, which administers the rescue fund,” Automotive News [sub] reports. “To raise the money and enhance its liquidity, GMAC seeks to persuade bondholders to exchange $38 billion in existing bonds for new debt. For the debt swap deal to go through, GMAC says it needs bondholders representing at least 75 percent of the $38 billion — about $28.5 billion — to take part. Last week, though, GMAC conceded it had met just $8.3 billion of that goal.”
Oops. So what happens next? Either the Treasury changes the rules– as if– or GMAC files for C11. “If the lender goes under, as many as half of GM’s 6,450 U.S. dealerships could be forced to close because they could not finance inventory, predicts Martin NeSmith, a GM dealer near Savannah, Ga. ‘Some might be able to get financing,” says NeSmith, who is GM national dealer council liaison to GMAC. “But a lot of them won’t.'”
At the risk of seeming callous, what’s wrong with that picture? GM needs to trim its dealers by at least that much. But imagine the inventory glut that would result from a sudden, catastrophic failure of 3200 or so GM vehicle-stuffed dealers. And if ResCap goes down, its creditors will come after GM– with a vengeance.
Inventory is temporary, dealers are FOREVER. Looks like a good deal for GM if GMAC squeezes some dealers out of business. It saves them the cost of litigating.
Omnifan, you’re presuming that GM survives…
Robert (and many others, myself included) can see where the next step leads from here.
Suddenly GM has to “take back” (onto factory lots/storage lots/sell to 1/2 the number of “customers” i.e. dealers) the stock of perhaps 1/2 of its entire dealership network over a relatively short period of time. As in, maybe 1 to 3 months.
On top of probably closing plants down for weeks at a time – soon to be months at a time. While paying UAW wages to laid off employees (which is precisely why they may as well have been running the plants and “piling them high, selling them cheap” over the past 30 or so years).
Plus you’ll have the (not so) level headed suppliers who’ve just about had enough of being told by GM and especially Chrysler, that they WILL simply wait 3 no now 4 no now 6 months for their monies (from what are essentially bankrupt companies).
Something is going to go “snap” and the whole house of (GM) cards will collapse one of these days.
The majority of the talking heads on the cyclops are going to be in “shock and horror” mode as in “we’ve been blindsided” – but they aren’t reading TTAC (or lately, any number of johnny come lately news feeds).
Where would the dealers that close be? Are they going to be in rural areas, where GM is still big because there are few if any transplants, or in urban areas, where there are plenty of transplants and fewer sales?
Many of the urban dealers probably have other brands either on site or at other locations, so they might be able to withstand this. But rural dealers usually don’t have other brands. They may have a couple dealerships, but usually all only offer some GM product.
If it’s the rural dealers that go under, it’s another blow to the gut of GM.
GMAC hit the snooze button again… from Bloomberg:
Holders of a “substantial portion” of $38 billion in GMAC debt agreed in principle to new terms including an improved interest rate and a capital contribution by its owners, Detroit- based GMAC said in a statement. The deadline was extended from yesterday to Dec. 16 for early delivery, with final expiration set on Dec. 26.
I know Ford considers their rural dealers a competitive advantage relative to their Import competition.
I’d think the rural Chevy dealers would be ok.
One thing to remember is that so many of GM’s dealers are not totally dependent on GM.
In my part of rural Missouri, we’ve got a GMC/Buick/Honda dealer, a Mazda/Mercedes/Cadillac Dealer, a Chrysler/Jeep/Subaru dealer, a Saturn/Hyundai dealer, and the guy who owns the Ford dealership also owns the Toyota and BMW dealerships, though they are technically separate entities.
The only dealership that is wholly GM is a Chevy dealer, and hell I might be wrong about that.
Not sure if such a mixing would really save the company as a whole from a collapse of financing for one particular brand or how that scenario would play out.
Yeah, toxicroach, that’s accurate for my area, too (NW Michigan).
Ford dealer owns BMW and Mazda stores too.
VW dealer owns Caddy (ex-Olds) and separate Subaru store; a separate Toyota store (same showroom as VW’s – weird); next door, a Nissan/Audi/Volvo store.
Chevy dealer owns a Chrysler/Dodge/Jeep store 25 miles away (same shopping area), a Kia dealer and a Honda dealer, both in town.
The Pontiac-GMC-Buick store owner has Chrysler-Dodge-Jeep next door to his GM store, then a separate Saturn store next to his Hyundai store.
Traverse City is a big tourism area, has had lots of growth but isn’t even 1/5th the size of Grand Rapids 150 miles south of us.
menno : Suddenly GM has to “take back” (onto factory lots/storage lots/sell to 1/2 the number of “customers” i.e. dealers) the stock of perhaps 1/2 of its entire dealership network over a relatively short period of time. As in, maybe 1 to 3 months.
I’ve been waiting since September for GMAC/GM to pick up all of Landmark (nee Bill Heard) Chevrolet’s inventory. Judging from what I see on the freeway, they still have 20-40% of their inventory on the lot. Its ironic, the first things to go were the Aveos and the used cars.
Take a good look at how GMAC is handling the Bill Heard situation, then multiply it hundreds of times over if they fail. When they fail?
This is gonna get ugly, and everyone in larger cities will have a Landmark Chevrolet cancer on their landscape. Not good.
So GM is now forced to admit that many of the cars on the dealers lots are actually additional stored inventory courtesy of GMAC. One can be sympathetic to the human wreckage about to come about here, but as I said before, no other industry has been given this protection from preditory capitalism. Bethlehem Steel, where I came from simply vanished with a couple of their best plants taken over by others. There 17,000 employee presence in Bethlehem, Pa. (pop 73,000) is 100% vanished. Steel was also supposed to be the lifeblood of a modern economy and necessary for war time armaments (Bethlehem built the supersstructures for many of NYC landmarks, and shells for previous wars). I have to think. if only Bethlehem (a hugely mismanaged company) could have held on until this recession.
I really don’t think there is any way the GMAC can get any money from the $700b TARP fund so their CH11 filing is almost guaranteed. There is only $15b left of the first $350b, either it goes to save GM’s ass or to GMAC but it’s not enough for both. And the Whitehouse has to get Congress to approve using the other half which wont happen until next year. And do any of you think GMAC will be just given the money after what has happened to the first half of TARP, Congress is goingot put some serious strings onto the last half of that money.
I think GM is screwed at this point, no saving them from what is going to happen. Caught between their own bankruptcy filing and their finance arms filing with no real way out.
menno: How is Traverse Motors doing? Are they completely independent of any domestic-nameplate operations? I say this because most Michigan dealers that sell imports, including where I bought my car, would crash if they lost their Chevrolet/Ford/Chrysler-Jeep/Buick/etc franchise.
Don’t be surprised if Treasury and/or FDIC brokers a sale of GMAC’s assets, including the deposits in GMAC Bank, to a major financial institution or two, followed by a Chapter 7 of what’s left.
If that happens, the subtext of the story could be the beginning of the end for Cerberus. That would be a conspicuous failure, and might be difficult for them to move past with their investors.
After this mornings news of the White House giving up to 40B to these loser’s I know now why people go Postal! One more gift from Bush before he leaves.I hope there is a strong stance taken from the tax payer in the form of not buying anything from these Companys, I won’t!!!
Interesting:
http://biz.yahoo.com/ap/081215/wall_street_arrest.html
J. Ezra Merkin, the chairman of GMAC Financial Services, was among the victims of the immense Madoff ponzi scheme. That’s confidence inspiring.
928sport: After this mornings news of the White House giving up to 40B to these loser’s I know now why people go Postal!
What are you talking about? I haven’t heard about $40b going to anyone, do you have a link.