Kevin Colby: News, culture, political blog

Now here is a real bright idea!  Subprime borrowers may now be able to get a car loan through GMAC thanks to federal bailout money, according to The Detroit News.   This is exactly what happens when your beloved government doesn’t let these companies file for bankruptcy, but instead handout billions upon billions of your hard earned income to these companies so they can make idiot decisions.

On 24 December 2008, the Federal Reserve accepted GMAC’s application to become a bank holding company in order to gain access to billions of dollars in government aid, a crucial attempt to ensure the survival of the company. GMAC is in discussions with the Federal Reserve on accessing TARP related funding to resume providing auto financing to the American consumer, as reported by the Wall Street Journal.

I guess we haven’t learned our lesson yet.  You don’t give dirtbags any type of loans!  This is like going back to the future with the lowered lending standards that got us in trouble in the first place across so many credit markets.

Applicants with credit scores of less than 620 will now be considered. Of course, if you have terrible problems with credit, it’s probably not a good idea to take on a long auto loan.

It’s clear this is happening right now because car sales were absolutely decimated last month. GM sales were down 45%; Chrysler was down 39%; Toyota was down 39%; and Honda was down 36%. The auto market overall was down an average of 37%.

So the nearly $6 billion made available by the government is being used to make loans to people who may not be able to pay them back — all in an effort to try to move cars that aren’t selling off dealer lots.

This is a really bad freaking idea.  The answer to the lack of demand for these cars is not to go to the subprime market because these people in a very short time will not be able to make the payment and these cars will be coming back through repossession.

GMAC Financial Services is a global finance company operating in and servicing North America, South America, Europe and Asia-Pacific. It was founded in 1919 as a wholly-owned subsidiary of General Motors, Corp. In November of 2006 Cerberus Capital Management, a private firm, and a handful of partners purchased a controlling 51% interest in GMAC. GM continued to hold the remaining 49% ownership stake. But in late December 2008, when GMAC began to participate in the Treasury Department’s bailout of the financial sector, Cerberus reduced its ownership in GMAC by distributing shares of the company to its co-investors. This enabled Cerberus to avoid becoming a bank holding company, which would have brought the company under greater federal oversight.

Under Treasury’s Troubled Asset Relief Program (TARP), GMAC received $5 billion in exchange for preferred stock and warrants. In addition, Treasury agreed to lend GM up to $1 billion so it could participate in a rights offering at GMAC as it reorganizes into a bank holding company.   In January GM made use of that loan, using $886 million to increase its ownership stake in GMAC to just under 60%.

According to Forbes, GMAC is the country’s fourth largest private U.S. company. Among all U.S. companies, Fortune lists GMAC as the country’s 78^th largest.  GMAC is the sponsor of one of college football’s annual bowl games. Fortune also ranks GMAC as among the biggest financial losers (based on 2007 financials) of the Fortune 500. Early this year GMAC posted a $7.46 billion profit after five straight quarters of posting a loss. In the fall of 2008, due to low cash reserves, GMAC was forced to choose between financing GM dealerships’ operating expenses and financing car loans for vehicle purchases. GMAC chose to support the dealerships and for a time did not write any car loans. The company has since resumed financing car loans. At least one analyst believes the U.S. auto industry might be better off if a company like GM were to declare bankruptcy.

?Financial Documents

2008 GMAC 10K (Annual Report)

2-02-2009 GMAC 8K

1-21-2009 GMAC 8K

1-16-2009 GM Purchases GMAC Shares 8K

9-30-08 GMAC 10Q

6-30-08 GMAC 10Q

3-31-08 GMAC 10Q

2007 GMAC 10K (Annual Report)

?Federal contracts

No federal contracts located (last accessed 03/04/2009).

?Lobbying reports (if any)

GMAC | Sidley Austin |

?Political Contributions

Center for Responsive Politics (last accessed 03/04/2009)

?Related Articles

March 4, 2009 February Light-Vehicle Sales Slip (Barron’s)

March 4, 2009 Suzuki dealer ends financing with GMAC (Huntsville Times)

March 3, 2009 Auto Sales: Worst February in 40 Years (BusinessWeek)

March 3, 2009 TALF’s Terms Bring Little Relief To Struggling Auto Makers (CNNMoney)

February 12, 2009 GM talking with China’s SAIC to raise cash (Reuters)

February 10, 2009 GM bankruptcy could speed restructuring - analyst (Reuters)

February 9, 2009 Fed Needs to Stop Approving (Goofy) Bank Holding Companies (Seeking Alpha)

February 9, 2009 GMAC steps back from the brink (Automotive News)

February 6, 2009 Can The TALF Save Detroit? (Forbes)

February 6, 2009 Fitch puts auto floorplan notes under review (MSNMoney/AP)

February 3, 2009 UPDATE 3-GMAC has $7.46 bln profit, main units still in red (Reuters)

February 3, 2009 GMAC posts profit, but main units lose money (Financial Post)

February 3, 2009 GMAC auto finance business loses $1.31 billion (Automotive News)

January 24, 2009 GM gets $884 million for GMAC restructuring plan (The Windsor Star)

January 23, 2009 GM Increases GMAC Stake to Near 60% (TheStreet.com)

January 2, 2009 U.S. throws GMAC $6 billion lifeline (CNNMoney.com)

December 31, 2008 Bailout Trims Cerberus’s GMAC Stake (Wall Street Journal)

December 29, 2008 GMAC Receives $5.0 Billion Investment from the U.S. Treasury (press release)

December 24, 2008 GMAC - Fed opens door to bailout funds (CNNMoney)

Information obtained from Taxpayers for Common Sense

One of the concerns that have been raised about the bailout funds is that the beneficiaries weren’t being forthright about how they were spending the money. While the agencies involved were cooperating with watchdog and auditing agencies, the banks and other recipients were stonewalling.

A letter sent January 7th by Neil Barofsky, the Special Inspector General of the Troubled Assets Relief Program, to Senator Max Baucus (D-MT), Chairman of Senate Finance Committee, discloses that the newly-approved agreements with Chrysler, GMAC, General Motors and Citibank contain binding agreements that require better disclosure. For example, the Citibank agreement provides the TARP IG access to Citigroup personnel and records and requires that the company disclose exactly how the bailout funds are being used.