The government bailout of GMAC Financial Services gives General Motors a lender that's back in business with dealers and consumers. But GMAC is even less of a captive finance company for GM than ever before.
Nonetheless, the bailout has provided fresh capital to GMAC, and the lender expanded credit to GM car shoppers last week. GMAC also relinquished the exclusive right to provide low-interest loans to borrowers who buy GM cars and trucks. In other words, GM can now work with other lenders to offer subsidized loans to consumers.
On Dec. 24, the U.S. Treasury Department approved aid to GMAC from the $700 billion federal bailout fund for financial institutions. Treasury cited the authority that President George W. Bush provided to make emergency loans from the fund to GM and Chrysler LLC.
At the same time, GMAC said it had converted to a bank holding company. As part of GMAC's transition, the Federal Reserve is requiring GM and Cerberus Capital Management LP to cut their ownership stakes in the finance company. Cerberus, the parent of Chrysler, bought 51 percent of GMAC in 2006. GM kept 49 percent.
Cerberus now must reduce its voting power to no more than 14.9 percent of GMAC, although it can keep as much as 33 percent of the finance company's equity.
GM must cut its voting share and equity in GMAC to no more than 10 percent.
Last week, the Treasury Department said it was buying $5 billion in preferred shares of GMAC. Treasury also lent GM $1 billion to invest in GMAC.
The preferred shares owned by the government represent about 17 percent of GMAC's equity.
But while GM's stake in GMAC shrinks, the government bailout enables the automaker's former captive to expand dealer and consumer loans.
GMAC said last week it would make loans and leases to consumers with credit scores as low as 621 on a scale of 300 to 850. In November, GMAC stopped buying finance contracts for customers with credit scores below 700, which excluded an estimated 60 percent of GM's U.S. consumers.
Also last week, GM announced new low-interest-rate incentives that end today, Jan. 5.
In a related development, GMAC eased its debt burden last week after persuading holders of $21.2 billion of debt to swap their stakes for $15.7 billion of new securities plus cash.
In a filing with the Securities and Exchange Commission, GMAC said that for two years, GM will be able to offer incentives such as low-interest loans through other lenders, subject to various restrictions. Some of these restrictions will be lifted in December 2010, and all will be lifted in December 2013, the filing said.
GMAC had previously paid GM an annual exclusivity fee and was required to meet various financing targets for loans and leases, the filing said. That agreement had been in effect through November 2016, the filing said.
Mark LaNeve, GM vice president of North American sales, service and marketing, said last week that the automaker expects its relationship with GMAC to remain the same despite its reduced ownership stake.
But Brian Bethune, an economist with IHS Global Insight in suburban Boston, told Automotive News he expects that "GM's influence over the policies and decisions of GMAC will decline significantly."
Reuters contributed to this report