GMAC, Government Ownership and Competition

Mind you I’m not saying this is going to happen, but the tussle between the American Bankers Association and GMAC over the deposit rates the latter is offering may be glimpse of things to come.

The background on this one is that GMAC which is surviving on government funds is offering through Ally Bank, its online bank, one-year CD rates that beat the pants off of the competition. It’s offering 2.8% while the average rate on Bankrate.com has been 1.875%. This has the industry up in arms and claiming GMAC has an unfair advantage that it’s using to their detriment.

Here is the ABA statement from the WSJ:

“Ally Bank is offering interest rates well above the market in order to attract” deposits, said the ABA in a May 27 letter to the Federal Deposit Insurance Corp. “This aggressive deposit strategy is particularly egregious when it is used by a troubled bank in which the government holds a controlling interest. Such a bank is significantly shielded from investor and market influences that might otherwise act as a brake on risky financial strategies.”

What’s a government to do. On the one hand, the FDIC has indicated that they are concerned about banks that aren’t well capitalized offering premium deposit rates and has implemented a rule to curb those activities. On the other hand, the government desperately needs GMAC to be super competitive as a financier of auto purchases in order to goose the sales of its newest subsidiary. I suspect that since the government more or less owns GMAC that it can’t be considered under-capitalized anymore so it will slip through the net.

Anyway, back to the point of this post. Don’t you suspect that Ford and other manufacturers of autos are already looking at this turn of events and the ABA complaint to see what comes of it? Their PR people and lawyers are probably already gearing up to confront the same sort of real or perceived abuses. I’ve said it before, and I’m sure this isn’t the last time that I will say it, going up against a government owned GM would scare the crap out of me.