Why does GMAC need more money?

Marketplace Staff May 21, 2009
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Why does GMAC need more money?

Marketplace Staff May 21, 2009
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Kai Ryssdal: And I realize what I’m asking is easier said than done, closing your ears to straight economic numbers at a time like this. But it really can help. I mean, how much good would it do you to know that first time claims for unemployment benefits were down a bit last week? Or that an index called, leading economic indicators, rose just about as much in April as everybody was guessing. Not so much good, right?

So let’s concentrate instead today on the zeitgeist, the economic environment we’re in. Of bailouts and government support for ostensibly private companies. We learned today that GMAC is in line to get another $7 billion from the Treasury Department. GMAC is GM’s auto-financing company and, since its bankruptcy, Chrysler’s too. The money would help GMAC make loans to consumers and so help GM and Chrysler — but not Ford — move cars off their lots. From Washington, Tamara Keith reports.


TAMARA KEITH: GMAC is critical to both GM and now Chrysler after its finance arm was dissolved in bankruptcy. GMAC financing helps dealers stock their lots and helps consumers buy cars. Bill Visnick is a senior editor at Edmunds Auto Observer.

BILL VISNICK: Car dealers need GMAC to be able to extend that financing to the customers who are coming in to the dealerships because nobody can afford to turn away a customer, a live prospect in the dealership right now.

The stress tests showed GMAC was in big trouble. Federal regulators said GMAC needed to raise $11.5 billion in capital and admitted it would probably need government help.

MARYANNE KELLER: Frankly the balance sheet of this finance company is a wreck.

Maryanne Keller is an independent automotive analyst.

KELLER: So I’m sure that this money is going to be used to help facilitate some great big end of model year blowout sale.

Complete with too-good-to-be-true auto finance deals. But imagine being the Ford dealer across the street. Keller says carmakers that haven’t gotten government help could be at a real disadvantage.

KELLER: They have to fund their dealers, they have to fund their consumers. And they are going to be competing against two government-controlled entities where it seems that money in any amount is no object.

Money… no object. Hmmm. That’s starting to sound familiar.

In Washington, I’m Tamara Keith for Marketplace.

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