Allan Sloan explains GMAC’s good fortune

Steve Chiotakis Jan 24, 2011

Allan Sloan explains GMAC’s good fortune

Steve Chiotakis Jan 24, 2011


STEVE CHIOTAKIS: First, the government bailed out General Motors. Then Uncle Sam put taxpayer dough into GMAC — the automaker’s financing arm — to keep it from going under. Without the help, G-MAC would’ve gone belly-up. And its minority owners, GM and other investors led by private equity giant Cerberus would’ve lost everything. With the help, those same investors come out at least a little better.

Fortune Magazine’s Allan Sloan is with us now to explain the change of fortune. Good morning Allan.

ALLAN SLOAN: Good morning Steve.

CHIOTAKIS: So what kind of money are we talking about here?

SLOAN: We’re talking about somewhere between $2.5 and $3.5 billion involving these guy’s investment in GMAC, now known as Ally.

CHIOTAKIS: Now, investors are stilling down big time from the old GMAC days, right? Can you really say these folks are getting a free ride?

SLOAN: You can, because let’s take Cerberus for example. Cerebus put in $7.2 billion originally and in a bankruptcy would’ve lost it all. Now they put in extra money so now they’re down $6 billion on and $8 billion investment, which is better than being down $7.2 billion on a $7.2 billion investment.

CHIOTAKIS: Are they going to recoup any of this money, Allan?

SLOAN: Absolutely. Sooner or later they’ll sell their piece of GMAC in a public offering and they’ll still be down, but they’ll be down a lot less than they would’ve been if GMAC had gone bankrupt.

CHIOTAKIS: Why did the Federal government become so concerned with GMAC in the first place? I mean it let Lehman fail, right? Why not GMAC?

SLOAN: What happened with GMAC is GMAC finances 75 percent of the loans that vehicle dealers take to buy vehicles from GM. So, if GMAC went out of business, there wouldn’t be anybody to do this financing, because this financing is very sophisticated and not many organizations do it. So, they government was afraid that 75 percent of GM’s vehicle says would disappear and so would GM and they were trying to save GM so they saved GMAC as part of saving GM.

CHIOTAKIS: What lesson, Allan, do you think we can take away from all of this?

SLOAN: The difference between the way these big people at GM and Cerebus’ investors were treated and the way regular people were treated, GM and Cerebus are down, but they at least got something. If it had been a regular person in a similar circumstance, he would’ve been wiped out without a second thought.

CHIOTAKIS: Fortune Magazine’s Allan Sloan with us this morning. Allan, thank you.

SLOAN: You’re welcome Steve.

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