The government bailout of GMAC Financial Services can be an important part of helping General Motors and its dealers sell more cars and trucks. But GM should be prepared to establish its own captive finance company once GM is healthy again.
Historically, when other sources of financing dried up during tough economic times, dealers always could rely on the factory's captive finance arm. Not this time. The need for a reliable source of retail and floorplan financing was never more evident than during the credit crunch that began last year.
Many dealerships have been left high and dry because neither GM nor Chrysler LLC had control of its finance unit. Cerberus Capital Management LP, which owns 80.1 percent of Chrysler LLC and Chrysler Financial, bought 51 percent of GMAC in 2006. And the terms of the bailout will reduce GM's influence further.
By becoming a bank holding company, GMAC could obtain up to $6 billion in federal funds. But the change also opened the door to ancillary activities that could divert capital from the essential business of financing the sale of GM vehicles. Helping dealers sell cars was why GMAC was created 90 years ago. Decades later, GMAC added insurance, real estate service and mortgage businesses.
After all the bailout business is over, it would be best if GM could regain control of GMAC and again rely on the finance company to be a rock-solid, unencumbered source of automotive financing.
If not, GM must be prepared to start from scratch, just as it did in 1919.