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GMAC Joins the Black Hole Club

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The numbers aren’t as impressive as AIG’s but the general premise is the same. The automaker’s financial service arm it asking for a third taxpayer-provided cash transfusion. Might help if someone stanched the bleeding first.

But no, bleeding is part of the game plan. The reason for more dough to GMAC is so GM and Chrysler can continue to finance auto purchases, not as a result of greater than expected losses on its existing portfolio. So this is cash for clunkers under another brand name.

From the Wall Street Journal:

GMAC Financial Services Inc. and the Treasury Department are in advanced talks to prop up the lender with its third helping of taxpayer money…

The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008, these people said. The latest infusion would come in the form of preferred stock. The government’s 34% stake in the company could increase if existing shares eventually are converted into common equity.

The willingness by Treasury officials to deepen taxpayer exposure to GMAC reflects the troubled company’s importance to the revival of the auto industry….

Federal officials also are moving to shore up GMAC’s ability to fund its daily operations, with the Federal Deposit Insurance Corp. telling the company Tuesday the agency will guarantee an additional $2.9 billion in debt, according to people familiar with the discussions. The FDIC guarantee will make it easier for the company to sell debt to investors. The FDIC backed $4.5 billion in GMAC-issued debt earlier this year.

The FDIC approval came just four days before the expiration of the regulator’s program that guarantees debt issued by certain banks. It ended months of tense negotiations between GMAC and regulators. Without a deal, the company would have been forced to further reduce its lending volume. New-car loans by the company tumbled 55% to $5.6 billion in the second quarter from a year earlier.

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17 comments

  1. Graphite

    I really hope anyone who buys the FDIC-”backed” bonds in this insolvent money pit loses every goddamn penny.

    There’s a legitimate question as to whether FDIC can even insure existing bank depositors against losses and we’re trying to guarantee the entire corporate bond market with them … we’re well beyond the realm of insanity here.

  2. ex VRWC

    This was all the rage last year – “Treasury Department in talks with (insert bailout recipient here). My question is what checks and balances are to be applied? From where does the government derive its legal authority to do this? To take over companies and to commit taxpayer money?

    Answer – because they are the government and they can, I guess.

  3. Thanatos Savehn

    A neighbor just bought a Corvette and did it with a 72 month 0% loan from GMAC.

    The 0% loan money lending business model seems no less likely to succeed than the “burn cash like mad” dot com business model, but what do I know?

  4. sangellone

    I haven’t financed a car since the 1980′s and then with Toyota so I am curious. Is GMAC a real bank in the sense that it will finance a customer wishing to buy a Ford or BMW or is it just a financing arm for GM and now Chrysler?

    I still see GMAC/Ally bank ads for CD’s offering top rates so evidently the FDIC is turning a blind eye to their own rules.

  5. vixen sharpears

    Am I missing something here? GMAC, aka Ally Bank, is spending millions on a multimedia advertising campaign. Why are my tax dollars going to fund such profligacy and reinvention? If they were sticking to their knitting and financing cars it would be one thing. But they clearly are not!

  6. Linda

    Americans should continue to buy foreign brand autos and drive GM and Chrysler out of business forever. In that way the American manufacturing base will be left to the Japanese? Koreans? or perhaps China — after all, the Chinese government owns our country anyway. If GM, Chrysler and GMAC fail, we all should start learning to speak Chinese; the U.S. is already known as “Chimerica”.

  7. Hal Horvath

    Not to put too fine a point on it, but GMAC was a black hole, in a very clear way, already throughout 2008. Ditech kept advertising like crazy, inviting all the bad risks to come get more money. I started feeling like I was watching someone walk the plank when another Ditech ad came on.

    After the crisis hit in mid-2007, it was amazing to see the Ditech ads pick up…

    They went from offensive to otherworldly.

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