GM unshackled from GMAC

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Jan 2, 2009 | 03:06 PM

R377

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From: Ontario

GM unshackled from GMAC

Many folks have theorized that GMAC has been contributing to GM's problems by tightening up credit requirements too much for potential car bueyrs. For a while they would only lend to those with credit scores of 700, although shortly after GMAC received the $5 billion government loan they reduced that to 621 (which is the supposed dividing line between prime and subprime credit). Well, it now looks like GM is now free to find other financing providers, assuming there are some willing to step up.

http://www.detnews.com/apps/pbcs.dll...901020375/1148

Quote:

The federal government will get 5 million preferred shares of GMAC LLC paying 8 percent interest in exchange for its $5 billion capital injection to help the troubled lender avoid bankruptcy.

GMAC disclosed the terms of the deal in a filing Friday with the U.S. Securities and Exchange Commission. GMAC is the financial arm of General Motors Corp. and is responsible for making car loans and financing dealer inventories.

The government also exercised a 10-year warrant to buy 250,000 more GMAC preferred shares for a penny each, according to the filing.

GMAC said if the U.S. Treasury doesn't get interest payments on its preferred shares for six straight quarters, or more than six nonconsecutive quarters, it will get two seats on an expanded GMAC management board.

"These two managers will serve until all accrued and unpaid distributions on the Series D-1 Preferred Interests have been paid in full," GMAC said in the filing.

GMAC is 49 percent owned by GM and 51 percent owned by private equity firm Cerberus Capital Management LP.

In the filing, GMAC also disclosed that it will give up its exclusive agreement to provide financing incentive programs for GM vehicle sales, and that GMAC will no longer be obligated to provide financing for GM leases.

GMAC had paid GM an annual exclusivity fee and had been required to meet targets for leases and loans, the filing said. The exclusivity deal was effective through November 2016, according to the filing.

Also interesting are the financial terms of the "bailout". For those people complaining of the government just handing over money to these financial institutions, this is another example of how the government has extracted quite favourable terms in exchange for the "bailout" funds.

Last edited by R377; Jan 2, 2009 at 03:19 PM.

Jan 2, 2009 | 03:09 PM

Darth Xed

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From: Ohio

I am confused by this and GM's recent "Financing that Fits" program. The two would seem to have been contradictory of each other before this.

Jan 2, 2009 | 03:27 PM

1990 Turbo Grand Prix

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From: Crystal Falls, MI USA

Quote:

Originally Posted by R377

Many folks have theorized that GMAC has been contributing to GM's problems by tightening up credit requirements too much for potential car bueyrs.

That isn't just theory.

And sadly, the problem for dealers with GMAC goes well beyond consumer financing.

Jan 2, 2009 | 03:36 PM

Plague

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Joined: Sep 2004

Posts: 1,448

From: Irving, TX

Quote:

Originally Posted by Darth Xed

I am confused by this and GM's recent "Financing that Fits" program. The two would seem to have been contradictory of each other before this.

With the problems with GMAC and Cerebus not wanting to loan to people with below 700 credit, GM was having problems loaning money to people to buy cars. That is why they did the financing that fits program. Since now GM will be having a smaller stake in the company as a result of the bailout, it will be interesting to see what GM does with its financing.

GM can't just let GMAC goes as many dealers use GMAC to finance vehicles they get for inventory.