poSSum,

Yeah, I caught that after...you're right. HOWEVER, whether GMAC is a bank or not (as Niki doesn't seem to think is relevant here), IT MAKES MONEY. IT MAKES A LOT OF MONEY.

GMAC MAKES MONEY. GM DOES NOT.

Any questions? Even with an unfavorable debt rating, GMAC STILL MADE MONEY. A LOT OF MONEY. I'd rather make less money for a long time, and keep it, then make a lot of money in no time, and then watch someone else reap the benefits...

Do you guys think GMAC can keep handing out the super-low-interest-rate loans if it doesn't have the highly profitable mortgage arm to back it up? Think again, gentlemen.

 

This makes no sense to me. You don’t sell off a long-term profit when you have cash in hand. From my understanding GM has liquid capital. So, to me you keep GMAC. And when a company has several products (in this case a financial product) it is run separately. Allowing brands to have identity. GMAC took no focus off of GM’s auto product.

 

GMAC does not 'pay' for those low interest loans. The car side of the business pays for the cost of any incentives, whether it be low interest loans or cash back to the customer. It is more or less neutral to GMAC whether GM decides to offer a subsidized interest rate or not. If they offer loans at prevailing rates then GMAC keeps the revenue; if GM wants them to offer 0% then GM has to make up the difference to GMAC. That's why NAO is losing so much money (because they were paying for the $4000/vehicle incentives) while GMAC was making money.

 

I edited the title of this thread to make it a bit more accurate.

 

The side I'll be working for is in the residential holdings, so hopefully it is still intact. (and will stay that way.)

 

The bottom line is that GM is almost beyond the point at which they are making decisions. Now, desperation is almost completely determining what they do. People can spin this all they want with "getting back to the core business," but the reality is that a company does not sell a profitable business unless they really need cash and need it now.

This cash might be already spent, anyway. I read the Delphi buyouts will be part of the 2006 fiscal year.

GM has a couple fo decisions left, but the margin of error is completely gone. Every product needs to be a hit. Even if this happens, they could still fail, because in reality, they needed every car to be a hit starting three or four years ago, and besides some niche vehicles, we've seen not one.

I'm not usually a pessimist, but this is not a good day in the history of GM.

 

I was under the impression GMAC was subsidizing at least some of the low finance incentives. If not, my mistake.

Look at me...I'm already out of banker mode, and I'm still here for another week

 

0% Interest Loans are not all they're cracked up to be and to top it off, not many people are offering them anymore...

GM Needs cash NOW. Unfortunately, they are in deep. They are making major changes for the future of GM and those changes require money. Obviously, this will bring them in money that they need NOW.

 

GM is looking to sell 51% of GMAC primarily to get a better credit rating for GMAC and to raise some cash. It may not cost GM anything. Here's why: Note all numbers are hypothetical.

GMAC borrows money to lend. Let's say with the junk bond rating they can borrow at 5%. New car loans are made at 6%. GMAC makes a 1% profit.

51% of GMAC is sold and gets a significantly upgraded bond rating so they can now borrow at 4%. New car loans are still made at 6%. GMAC makes a 2% profit. GM owns only 49% of GMAC so they get "half" the profit ... 1% ... the same they made owning all of GMAC with a junk rating.

Sale proceeds cash in the bank and the same annual return. Genius!!

 

I hope I'm wrong, but sadly, I think this is the beginning of the end for GM.

 

Cornpone. Just a new chapter.

 

What if GM doesn't have as much cash as they say they have? The number of cancelled and delayed programs certainly points to that, and from what has been mentioned in certain circles, the claimed $20B in "cash" ain't quite so simple as that.

 

GM has been talking about selling this commercial arm of GMAC for years. Bottom line is...you make more money at 22% ownership and a non junk rating that you do at 100% and a junk rating (the difference in borrowing rates are that high!). The profitability of the auto side of GMAC will also be greatly reduced by the increased borrowing costs of GM's junk status.

 

The theory sounds good, but I can't see GMAC being twice as profitable even with a better credit rating. GMAC is very well run and is among the leaders in its industry despite their credit rating.

But even if you buy into that theory, that's assuming GM will be forever at junk status. If we are to really believe GM that a turnaround is just around the corner (mind you, it's been 'just around the corner' for 25 years), then it follows that their credit rating will eventually improve and so will GMAC's profits. So selling GMAC is a short term band-aid.

Unless, GM isn't so convinced of their own ability to turn things around. Maybe they don't think they'll ever get out of this financial mess and are just looking to sell while the selling's good.

Perhaps it's just an emotional response on my part, but I don't like the idea of selling GMAC. It's a bit like killing the goose that laid the golden egg. It's disheartening to see GM slowly sell all its non-core divisions, even the very profitable ones, all in the name of 'returning to their core business'. In most years it's been these non-core businesses that have returned the greatest profits to the corporation, so why be so eager to strip them away just to expose the rotten core? It's sad, but GM sure isn't the corporation it used to be.

 

That is my gut feeling also. Also and I know I said this before Kerkorian is in it for the money made from the GMAC sale and then he is gone. Still sticking with my gut on that one.