$5 Billion in Assistance Could Free Up Financing for Car Buyers

But is Federal Government Assistance Too Little and Too Late for GMAC?

Correspondent Derek Armstrong

$5 billion in help for GMAC is described as a “significant development for GMAC” by GMAC spokesperson Toni Simonetti, as part of a broader move that includes capital from affiliate Cerberus Capital Management. The actual amount of help is really just a footnote in a larger strategy, and may certainly seem to be too little to make much of a difference in the faltering auto industry. Decreasing demand is not simply a factor of access to financing, nor is $5 billion particularly significant, although the Treasury Department also agreed t lend up to $1 billion to General Motors Corp. (the corporate owner of 49% of GMAC) to allow GMAC’s reorganization as a bank holding company.

Last week, the Federal Reserve also approved GMAC's application to move to bank holding company status which would then make it eligible for funds from TARP, the $700-billion Troubled Asset Relief Program of the Federal Government.

The company’s official position is that it "intends to act quickly to resume automotive lending to a broader spectrum of customers to support the availability of credit to consumers and businesses for the purchase of automobiles."
Facilitation of future financing is probably less of an issue than the prospect of the failure of GMAC, which continues to be in jeopardy due to commitments of credit to about 5,000 auto dealers to finance showroom inventory and has about 15 million auto and residential loan customers. General Motors and the overall industry relies on GMAC and other lender to finance the majority of its customers, and analysts predict up to 2500 dealers would be forced out of business if GMAC was forced into bankruptcy.

The $5-billion investment is secured by preferred shares in GMAC that pay an 8% dividend.