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Big 3 Face Uphill Battle in Auto Loan-Backed Bond Market

November 05, 2008

DETROIT - Bloomberg.com has reported that General Motors, Ford Motor Co. and Chrysler LLC continue to face difficulty in selling bonds backed by auto loans in an increasingly tight market. The 'Big 3' were shut out for the fifth straight month, according to the report.

The news follows several weeks of reports, both confirmed and otherwise, that GM and Chrysler are in merger talks and that the OEMs' captive lender arms are considering converting themselves to bank holding companies, a move which would help to qualify them for federal funds under the Emergency Economic Stabilization Act of 2008.

Bloomberg cited figures from Merrill Lynch & Co. indicating that the sales of auto bonds dropped to $500 million in October, compared with $9 billion in the same month last year, and that the cost to sell the debt surged to record highs over benchmark rates. Concerns that car buyers would fail to make payments as unemployment rates and food and fuel costs continue to rise seem to have contributed to the perception that auto loan-backed bonds are an untimely investment.

"[The manufacturers] have no access to funding at reasonably economic levels," Eric Johnson, president of 40/86 Advisors Inc., told Bloomberg.com. "It means a faster burn rate. It doesn't change the end game: Either the government bails them out, or they're through."

The full Bloomberg.com article can be read here.

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