GMAC Sucks In More Federal Dollars

The black hole also known as the auto industry is about to suck in some more of your money.

According to Reuters, the Treasury Department is ready to commit an additional $7.5 billion to GMAC. You may recall that the stress test indicated that GMAC needed an additional $11.5 billion, so this looks like the first tranche. It’s probably safe to assume that GMAC couldn’t persuade any private investors to pony up. Based on the successful capital raising efforts of other banks, there would appear to be lots of private equity interested in financial services companies so the fact that the government is the only player with regard to GMAC probably tells you all you need to know about the value of this investment.

If you’re counting, so far the we’ve invested $5 billion in the company and loaned it an additional $884 million. With this new investment, the government can if it so chooses claim majority ownership of the company. That has to send chills down the spines of the non-state owned manufacturers. Competing with a lender that has unlimited capital and no profit motive isn’t a pleasant prospect.

While we’re visiting this parallel universe, here’s an interesting little quirk that’s popped up in the Chrysler bankruptcy proceeding.

It seems that the “new” Chrysler is angling to assume responsibility for warranties on cars produced by the “old” Chrysler but it doesn’t want to bear responsibility for product-liability lawsuits for cars manufactured by the “old” Chrysler. So if you bought a Jeep, for example, in April, its brakes failed due to faulty construction, you crashed the Jeep and ended up a paraplegic, you wouldn’t have anyone to sue for the damages you suffered.

Apparently, there are differences of opinion on this one, so it’s not a done deal that the BK court is going to buy off. Hopefully, a little sunshine will put the kibosh on this bad idea.

Somehow, the world keeps rotating through all of this.

more: here (GMAC) and here (Chrysler)

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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