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Analysts weigh in on GMAC
A sign for GMAC Mortgage Corporate Headquarters in Horsham, Pa.
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TEXT OF STORY
Kai Ryssdal: There are all kinds of ways to set up this story. I could say GMAC's got to work so GM and Chrysler can sell cars. I could say the government's already so far into Detroit, what's another couple of billion dollars. But maybe the best introduction is this: Another one? Seriously? Here's Bob Moon.
BOB MOON: Reaction from some financial pundits to this latest hat-in-hand visit to taxpayers has been right out of a scene from Oliver Twist.
OLIVER TWIST SCENE: Please sir, I want some more.
Critics want to know why the government won't just let GMAC fail. They argue it's still burdened with bad subprime mortgages, far astray of its original mission financing cars.
But Morningstar analyst David Whiston worries a failure now could still have grave consequences.
DAVID WHISTON: GMAC's major importance is that it's the lender to dealers, to buy the inventory for both GM dealers and Chrysler dealers, but also for GM and Chrysler customers. And some consumers need a loan through GMAC, because they may not be able to get one from another source, such as a credit union or another bank.
At CRT Capital, analyst Kirk Ludtke agrees.
KIRK LUDTKE: If you've already made that decision that you're going to make an attempt to save GM and Chrysler and committed tens of billions of dollars to that effort, it would make no sense to then let GMAC fail.
Ludtke points out, though, that more government cash would further tilt the playing field against Ford Motor Credit, which has managed to get by without taxpayer handouts.
But Morningstar's David Whiston says it would take more than just another handout to even the competition.
WHISTON: If the world economy comes back, credit gets better for everybody, GMAC, you know, in the future if they need more money, they can hopefully get it without going to the U.S. government. But the way things are as of today, no one wants to lend money to GMAC other than the U.S. government.
OLIVER TWIST SCENE: Please sir, I want some more.
What?
Please sir, I want some more?
More?!
In Los Angeles, I'm Bob Moon for Marketplace.
Like the defense industry, GM does not build cars--ie, employ people--in only one state. They, and the companies who make many of the 15,000 parts found in each car, have the ear of congressional representatives who don't want to lose jobs in their home state.
If GMAC isn't helping consumers to buy cars, AND not buying and selling home mortgages...guess what happens.
But shouldn't they declare bankruptcy so that like GM they can throw their bankrupt divisions in the trash and keep their profitable divisions? I really don't get why they would still be losing money unless they decided to keep all the sub prime people employed because they didn't want to be mean.
Most of the major airlines have been in and out of bankruptcy with no impact on travel, prices and saftey. Likewise, letting GMAC or any other TARP recipient go through bankruptcy would have a limited impact on their customers.
GMAC's bondholders knew (or should have known) the risks they were taking when purchasing their bonds. Any government bailout is transfer from taxpayers to those bondholders -- government-sanctioned theft!
