If Autos Ran on Red Ink, GMAC Would Be Like a Mileage Leader

If your personal finances are in a funk, then misery loves company with a government-backed warranty:

GMAC, a crucial player in the U.S. auto industry, has been unable to raise the $11.5 billion regulators said it needed after stress test results were announced in May. The Fed says the finance company is expected to close the gap with more money from the $700 billion financial bailout.

GMAC, already the recipient of $12.5 billion in taxpayer infusions, is negotiating with regulators over how much more it will receive.

More from AP via Cincinnati Enquirer here.

Reason.tv on the auto bailout (yeah, yeah, this is the bailout of a bank, yeah, yeah):

Update: Commenter Hmm notes, "GM doesn't own GMAC anymore. The auto connection is tenuous at best and there eeally isn't an auto bailout connection with GMAC." It's absolutely right that GM doesn't own GMAC anymore. However, GMAC was bailed out via the Treasury Department's administration of TARP and it applied to become recognized as a bank only after that seemed to be the only way it could get bailout dough (read Jacob Sullum's column, linked above and here, on the matter). And GM and Chrysler received loans from Treasury because then-Secretary Hank Paulson, who feared a "disorderly bankruptcy" of the two automakers, claimed authority to do so under TARP. Even though TARP was supposed to be for banks and banks alone. Which now include GMAC, so it can get money to help out the automakers it's no longer owned by. So the auto bailout connection is quite strong, despite it legally not being particularly strong.

Comments

[Hmm]

GM doesn't own GMAC anymore. The auto connection is tenuous at best and there eeally isn't an auto bailout connection with GMAC.

[mch]

For one actual dyselxic moment, I thought it read "unable to raise the []11.5 billion regulators . . ."

[P Brooks]

GMAC, a crucial player in the U.S. auto industry, has been unable to raise the $11.5 billion regulators said it needed after stress test results were announced in May.

GMAC- too big to fail?

I think not.

[lc]

"GM doesn't own GMAC anymore. The auto connection is tenuous at best and there eeally isn't an auto bailout connection with GMAC. "

This is technically true. However, GMAC is a major source of financing for purchasers of GM and Chrysler cars. If GMAC folded, then no one could finance GM or Chysler purchases, and you would have major problems for GM. Someone else might come into the market, but they would offer nothing like the extraordinary prices that GMAC provides as an arm of the government.

[lc]

They also wouldn't let GM do anything as stupid as a 6 month free return policy.

[hmm]

I don't speculate on the rational of Treasury secretaries. Hence the tenuous connection. GMAC was sinking due to mortgages, was a separate company, and yes did finance over 70 percent of GM dealers. Making the leap to the GMAC bailout being about the auto bailout is a little slippery. It's plausible, but unless you have Henry saying he bailed out GMAC to save GM I wouldn't be willing to draw that line. GMAC tanked on mortgages, it is just as likely they sought to prop up yet another mortgage lender. I do believe the majority of GMACs loans were mortgage based.

(yes I know the timing as well, it doesn't change the situation or the speculation needed to draw the connection)

[hmm]

Point being there are more than one line of reasoning or logic that lead to the GMAC bailout. Odds are several reasons were used to rationalize the decision. I wasn't part of the decision so I go on the limited information provided, not what appears to be obvious.

[lc]

"While the two automakers dominated news coverage of our efforts, we were simultaneously addressing myriad related problems, including decisions whether to bail out the auto-part suppliers too (generally, no) and whether to recapitalize the auto-finance companies (in the case of GMAC (GJM), yes)."

http://money.cnn.com/2009/10/2.....2009102109

This is from an article Steven Rattner wrote on the auto-bailout. As his purview was simply the bailout of the auto-sector and not the mortgage market, it seems very reasonable to assume the GMAC bailout was related to its effect on the auto market.

GMAC was not a large systemically important bank, it could have failed but for its effects on the auto-market.

[hmm]

I guess tenuous was too strong. I still have a hard time with speculation as that being the sole rationale.

I'll gladly concede a connection, I just don't think you can hold that as the sole reason for their bailout. Which is how I read it.

[Hazel Meade]

Anyone taking bets on how long before GM gets another bailout?

[Paul]

No.

[Stormy Dragon]

I'm SHOCKED that, after the way secured creditors were treated in the Chrysler and GM bankruptcies, to find out that GMAC is having trouble finding secured credit.