Fallout: The Financial Crisis

St. Bernanke has a gift for GMAC

Jeremy Hobson Dec 25, 2008
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Fallout: The Financial Crisis

St. Bernanke has a gift for GMAC

Jeremy Hobson Dec 25, 2008
HTML EMBED:
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TEXT OF STORY

KAI RYSSDAL: The Federal Reserve had one last Christmas gift for the auto industry. And Old Saint Bernanke crammed it down Detroit’s chimney before the kids had gone to bed last night. GMAC, the financing arm of General Motors, is being allowed to become a bank holding company.

GMAC joins other recent converts, including American Express and CIT group. Why? Because bank holding companies get something that auto financing companies, credit card companies and commercial lenders generally don’t: Access to billions of dollars from the Federal Government’s TARP program.

Marketplace’s Jeremy Hobson reports.


JEREMY HOBSON: A car is the most expensive thing Americans buy after a house. Most people don’t pay in cash, they need loans from financing companies like GMAC.

And, says Michelle Krebs, editor of EdmundsAutoObserver.com:

MICHELLE KREBS: It’s also a tool for the auto companies to, you know, special lease deals or special loan rates, and those are made possible through companies like GMAC so those are also ways to lure people into the showroom.

So they can buy cars from GM, which itself just got a loan worth more than $9 billion from Uncle Sam.

KREBS: Funds have totally dried up for everyone. So the only source of funds, it seems these days, is through the government.

Toni Simonetti is a vice president of global communications for GMAC. She says changing to a bank holding company will help GMAC in the long term, not just right now.

Toni Simonetti: The online bank is a way for us to generate deposits, a very stable base of funding. So you’ll see us operating more like a bank and less like an industrial company.

As a result of the status change, GM and the private equity firm Cerberus will have to drastically reduce their stakes in GMAC to meet federal requirements.

Simonetti says while the Fed’s move does provide immediate relief, GMAC still faces a number of challenges — including a major restructuring of company debt that’s supposed to conclude tomorrow.

I’m Jeremy Hobson for Marketplace.

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