GMAC seeks bailout

General Motors' finance arm seeks capital infusion from Treasury as it files to become bank holding company.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Chris Isidore, senior writer

Since the start of the recent market meltdown, how often do you check your 401(k) balance?
  • Once a day
  • Once a week
  • Once a month
  • I can't bear to look

NEW YORK ( -- GMAC Financial Services announced Thursday that it is seeking government assistance, trying to access the $700 billion set aside for banks that its parent General Motors has so far been denied.

GMAC also announced that it has submitted an application to the Federal Reserve to become a bank holding company. Under the Troubled Asset Relief Program (TARP), Treasury has invested $158.5 billion in 23 banks in an effort to stabilize the financial system.

GMAC did not say how much money it is seeking.

A company spokeswoman said the money would be strictly for GMAC, and not be passed along to GM (GM, Fortune 500), which still owns 49% of the finance firm.

The CEOs of GM, Ford Motor (F, Fortune 500) and Chrysler LLC spent two days on Capitol Hill this week seeking $25 billion in loans from TARP to solve a looming cash crisis that could lead to bankruptcy filings for GM and Chrysler later this year or early next year.

So far Treasury and the Bush administration have opposed the idea, despite a push from Democratic leaders in Congress.

The Bush administration and some top congressional Republicans said they are open to making other federal funds available to the automakers.

Making TARP funds available to GMAC could give a lift to General Motors by making credit more available for potential car buyers and dealers.

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 $2.5 billion loss in the third quarter, bringing its losses in the past five quarters to $7.9 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 $14 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 $25.3 billion in subprime mortgages, making it the 11th largest firm in that field, according to rankings from trade publication Inside Mortgage Finance.

In 2006, subprime lending slipped 16%, but GMAC made a big push into so-called Alt. A loans, those made to borrowers who did not provide full documentation of their income. That year, GMAC became the No. 3 lender in that field.

As the housing and mortgage markets crumbled, results turned south for GMAC as well. At the time of the Nov. 30, 2006 closing of the sale to Cerberus, GM had to refund about $1 billion to GMAC to restore capital that had evaporated during the eight months it took to close the deal. And the firm has lost money in six of the seven quarters since the closing. To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.