GMAC needs a bailout
By admin on November 20, 2008
GMAC Financial Services is asking for a piece of the 700 billion dollar bailout pie from Washington. The company has also applied to be become a bank holding company. GMAC has lost nearly 8 billion dollars over the past 5 quarters.
General Motors, which used to own GMAC, has spent the last 2 days on Capitol Hill begging legislators for a chunk of the same bailout funds. Though GMAC is no longer a fully owned subsidiary of General Motors, the auto maker still owns 49% of the financial services company. GM would not have direct access to any bailout funds given to GMAC, but the company would certainly benefit: GMAC provides car loans to General Motors customers. So, if GMAC’s situation improves, then maybe GM’s will too.
Here’s more, from CNN:
- General Motors sales plunged 45% in October, largely because of tight credit for buyers. GMAC announced its lack of capital was forcing it to only make loans to buyers who had credit scores of 700 or greater.
- “This should allow us to provide greater access to credit for our customers,” said the spokeswoman, Toni Simonetti.
- GMAC, once a profit-generating life raft for GM, has had its own problems in the past year due to problems in financial and automotive markets. It reported a .5 billion loss in the third quarter, bringing its losses in the past five quarters to .9 billion.
- In 2006, GM sold 51% of GMAC to private-equity firm Cerberus Capital Management in an effort to unburden the finance arm from GM’s low credit ratings. GM’s junk status forced GMAC to pay higher rates to raise capital. In addition, the sale of the stake to Cerberus gave GM a much-needed billion.
- GMAC had moved away from a focus on auto finance and by 2005, mortgage lending and insurance accounted for 57% of its income.
- In 2005, before the housing bubble burst, GMAC had originated .3 billion in subprime mortgages, making it the 11th largest firm in that field, according to rankings from trade publication Inside Mortgage Finance.
Read the full story here.
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