GM needs a captive? Think again

Donna Harris covers retail issues for <i>Automotive News</i>
GM and many of its dealers talk as though having a captive finance company would solve all their problems. Let's examine that notion.

The current GMAC is making strides and building liquidity as a bank. And GM dealers' problems with financing began several years ago, when GMAC was a wholly owned GM subsidiary.

Cerberus, the private equity group that bought a majority stake in GMAC in late 2006, wasn't responsible for the subprime mortgage crisis that hit the fan a few months later.

And GMAC's current management isn't responsible for the company's ailing mortgage business. GMAC has been in the mortgage business for a quarter century.

While it was still a captive, GMAC wrote the vast majority of those leases that cost it more than $1 billion in depreciation on off-lease vehicles when fuel prices soared two years ago.

And the current management isn't wholly responsible for GMAC's uncompetitive rates and terms in the wake of the credit crisis, either.

GM dealers were complaining that GMAC was uncompetitive for several years when it was a captive finance company. GM even had to resort to paying extra cash incentives to induce car buyers to finance with its subsidiary.

No, it was GM's poor debt rating that made GMAC uncompetitive as a captive finance company and magnified its struggles later during the credit crisis. GM's debt rating slid to junk status several years ago, and that drove up GMAC's cost of funds.

So GM dealers think they'd automatically be better off with a captive finance company?

How quickly they forget.