I’m sorry. I know. I should move on. I’d like to move on. But the more I read about the federal government’s $6b “investment” in troubled auto and mortgage lender GMAC, the more deranged the deal becomes. Fans of this series (?) will know that Uncle Sugar now effectively owns GMAC. If I were the head of Ford or Toyota or Honda’s lending unit, I would be mighty pissed. As a journalist, I find the cloak of secrecy surrounding the arrangement, from the timing of the Fed’s pre-approval for GMAC to morph into a bank, to the fine print of how this is all supposed to work. A regulatory filing unearthed by Forbes reveals that GMAC has “amended,” but not canceled, its exclusivity agreement with GM. “Purportedly, GM may now offer incentives such as low-interest loans through other financial outfits with increasing flexibility over the next 24 months. While the filing seemed to imply that private competition may be entering the government-backed lender’s universe, both the auto manufactorer and its banker seemed to indicate that nothing material had changed and the two had only altered their pact to satisfy the Federal Reserve’s demands.” Oh, that’s alright then. Or is it?
The AP provides a little more insight into the GM – GMAC horizontal mambo. Or, if you’re like-minded, raises even more questions.
“In its filing with the U.S. Securities and Exchange Commission, GMAC said General Motors Corp. can now offer financing incentives such as zero-percent loans through other lenders under certain circumstances. [Ed: such as?] Some of the restrictions disappear in December 2010 and all of the restrictions will be gone three years later.
“GM spokesman John McDonald said the automaker doesn’t plan to change its financing incentive agreements with GMAC and hopes GMAC will continue to offer the loans because they have been key to getting more people to buy GM cars and trucks.”
So we bailed out GMAC to save GM– in fact, gave GM an extra $1b to plow back into GMAC– but GM is now free to go off and offer loans from someone else? But they won’t because they like GMAC? Somebody help me out here.
“Neither GM nor GMAC would reveal whether the annual fee for exclusive rights to lend to General Motors dealers and consumers would be more or less than the $75.0 million yearly fee GMAC has been paying since 2006. That was when Cerberus Capital bought a 51.0% stake in the lender for roughly $14.1 billion in cash.”
Uh, we OWN GMAC now. We have a right to a full and unfettered look at the books. (Which is also true of GM and Chrysler, but don’t get me started.) So what gives?
It’s disgusting. To put it in perspective, the roughly $50b doled out in bailout funds to GM, GMAC, Cries-ler (including the $25b of formerly-green funds) = more than 50% of the federal education budget and more than 60% of the loan portfolio guaranteed by the SBA. The latter isn’t even a fair comparison, since the SBA primarily guaranees loans, rather than actually providing the cash as has occurred with the automakers.
Too bad education and small business don’t have the combined lobbying power of the UAW, the automakers, the banks and private equity.
the powers that be
unbeknownst to you and me
have us focus on ABC
when should be XYZ.
Hmmm, that means the federal government has just bought $5B of GM cars. I thought at least GMAC would be required to finance other car companies. But I was wrong.
I spent the first 17 years of my life in China, and I can tell you this is exactly the type of corruptions that happen there. And I assure you, this is not how a strong nation is built. By doing this sort of things, you will have your embassy bombed, and you don’t dare say sh-t.
Hmm So $5B / $25K = 200,000 cars… That fixes maybe about 7 weeks of the GM sales drop based on Nov. numbers.
Wonder what happens in 8 weeks?
RF –
Look down the road a bit. What incentive do GM’s debt holders have to now convert their debt to equity? IIRC, GM needs to convert 2/3 of this debt to new equity by March 31.
These debt holders just saw Uncle Sam pay no attention to the thresholds it set for GMAC, just doling out the money regardless of whether they hit the targets or not.
So the GM debt holders, who were told that the only alternative to a debt-for-equity swap was CH.11 for GM, now know that the guvmnt will step in. I predict GM will fall well short of the 2/3 target, simply because there will be no threat of Ch.11, just more money down the hole….
mikey610 :
10-4 on that one.
I’m been puzzling over why George Bush would spend all this money on bailing out the carmakers. After all, he insisted for several weeks (and quite rightly) that he would never do it.
The only answer I can figure out is that he was worried that invading two foreign countries, ruining the domestic economy and bailing out the banks might not win him the title of worst president ever. So thinking of his legacy, he decided to piss away $50 billion more in a bold move to ensure his place in history.
Brilliant plan. I’m sure it will work.
Farago-
This question is for you……Do you think this opens GM or Cerberus up to be able to open or start up a new captive finance arm. I.E. Chrysler financial to step into place of GMAC?Please respond
No.
that was quick
buickman-
you are wise beyond your years…ever think about selling cars?
lw,
Don’t forget that now GMAC is a “bank” the dollars to loan get leveraged about 9 to 1.
So, 5Bx9= 45B. 200K cars x 9 = 1.8MM.
Strictly academic, but it does extend the date-o-death a bit.
As a Ford bondholder, this pisses me off. Every Silverado moved by this deal is one less F-150 off Ford’s lot. This is a zero sum game. Obviously, Cerberus has good contacts in Washington, better than the rest of the auto industry. As far as I can tell, Cerberus walks away with a third of GMAC including the $6 billion infusion. GM gets to move some metal…maybe. Ford gets less than nothing.
So what’s the possibility that our incoming president, if he decides to, can still pull a hardline and say “sure, this is all a lame duck president could do at the end of his term to put a band-aid on the situation but this is what we’re going to do now” and put hard goals in place or force C11? IF, and this is a big if, that happens wouldn’t that wash out mikey610’s scenario a bit?
Rix:
As a Ford bondholder, this pisses me off.
The WSJ editorial page states that Ford was basically told to ‘drop dead’:
http://online.wsj.com/article/SB123085986972148021.html
c11 for gm will not happen…with or without obama.
@ dubtee1480
Your question is an interesting one. From what I read of Obama, he seems a realist plus he has surrounded himself with some pretty bright financial people.
They may well understand that GM/Chrysler are insolvent zombies incapable of salvage, but as PCH101 has said may times (and I agree), they are just aiming for a soft landing in the unemployment count.
If he’s a political captive of the Frank/Levin type Democrats, then the money flowing out the door will continue for sometime I suspect.
Does he have a mandate within his own party to call the shots? He might.
Bondholders might be in the driving seat now with the most recent actions for GMAC. Moral Hazard alive and well.
So GM is now doing 0% via the government…. And the treasury just announced a program to formalize “Citibank” style bailouts.
Ever get the feeling that Bush is digging a very very deep hole for Obama?
Just imagine the last few surprises in store for the next 3 weeks.
Further proof that the only honest politicians are the ones not in positions of power.
The bright financial people Obama has surrounded himself with are the same bright people that got us into the mess. That right there was not change we could believe in. Obama voted for the TARP etc bailouts. That is not change to believe in.
The last president who actually stood up to the financial establishment was Ronald Reagan. He backed Volker’s play to ramp up interest rates to put a halt on runaway inflation. Those not living in those times can’t conceive how horrible it was.
Reagan was under tremendous political pressure by the bank lobbies and by congress to cut interest rates because this cure resulted in a recession.
In a couple years the recession was over and the back of runaway inflation was broken.
This toughness to do the right thing is something GWB rolled over on and whimped out. Obama of course is one of the biggest if not the biggest receive of donations from the financial establishment. They have been backing him all along.
Exactly what Change should we really expect? I expect even more of the same- TARP and car bailouts will soon seem quaintly miniscule/
Yes very unfair to Ford, but look who Dan Quayle works for. Bush family money is in Cerberus. Now since the US has offered incentive money, maybe Japan Korea can also offer incentive money, then we can buy the cars we really want.