GMAC, the former lending arm of General Motors Corp. (NYSE: GM) has hedge fund Cerberus as its largest owner. GM still has a piece. Now, the financial firm has begun to undermine the fortunes of the car company that created it to give car loans to its customers.
According to The Wall Street Journal (subscription required), "GMAC LLC, the big home and auto financing company, this week began restricting new loans to the most credit-worthy buyers after an attempt to raise new funds failed. The move threatens to crimp General Motors Corp.'s U.S. sales, forcing the struggling auto maker to push its potential buyers to other lenders." Those "other lenders" are mostly banks, who do not want to give car purchasers any money either.
GMAC's problems are, to a large extent, because of its mortgage lending operation, but that hardly matters to GM, which is losing $1 billion a month on its North American operations. GM's unit sales are running off 20% or better compared with last year.
For GM to keep itself out of Chapter 11, it needs to build more fuel-efficient cars. Along with other U.S. car companies it has gotten $25 billion in loan guarantees from the U.S. government to change over plants to achieve that goal. But, if consumers cannot get car financing, it will not matter what kind of car they want to buy.
Unfortunately, the U.S. government is going to have to take a role in the car lending crisis along with all of its other bailouts. If GM cannot sell cars due to customer credit concerns, its cash balance could shrink ever faster than it already is. GM might have to get a multi-billion loan from the Fed.
Or, the U.S. government could step in and guarantee many car loans, at least for people with good credit.
It is so awful that it has come to that.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
10-16-2008 @ 11:39AM
Dallas S. said...
I really agree with the statment in this article. Know how our stocks have just frozen, and hoping to God that AIG doesn't go under. Becuse if we do then there will be a 'Great Depression' the re-make.
10-16-2008 @ 12:54PM
Michael Sanders said...
Wow! "Cerberus," in Greek mythology, was one of the hounds of Hades. It is described as being a three-headed dog, with a snake for a tail. Cerberus is also a hedge fund. What kind of person would name a financial entity, after such a beast? Often, we choose names, based on subconscious traits, which are very telling... I cannot say that this is the case with the Cerberus company, but it sure makes me wonder, after what's been going on. I'd like to think that Cerberus is a good Christian company and that they just didn't realize what they were doing/saying, when they named the company. One things for sure, we'll find out, as time goes on and the people are able to judge their actions in the financial scene. I always hope the best, but with a name like that, I'd think twice before I did business with them!
10-18-2008 @ 11:50AM
Dennis C said...
Since Cerebrus took over the GMAC operation, dealerships have been squeezed to the point where they have significantly lowered their inventories. GM has had to close plant after plant and they have no one to blame but themselves. By selling off GMAC to such a greedy slimy hedge fund group in an effort to acquire cash was just another disaster that is the Rick Wagonner Mark Laneve legacy of GM.