The Industry's Leading Source For F&I, Sales And Technology

Special Finance®

GMAC to Continue Operations During GM's Bankruptcy

June 02, 2009

On the heels of General Motor’s Chapter 11 bankruptcy filing

on Monday, GMAC Financial Services issued a statement saying it is taking the

appropriate steps to protect its interests during the troubled automaker’s

restructuring.

Looking to avoid the uncertainty that clouded Chrysler

Financial when Chrysler LLC filed, GM submitted a motion to the U.S. bankruptcy

court that, pending approval, would allow all of its direct business with GMAC

to continue as it attempted to emerge from bankruptcy.

 

“GMAC continues to provide automotive financing products and

services to GM and Chrysler dealers and customers, including retail auto

originations, wholesale financing, insurance products, and servicing of

customer loans,” read a statement issued by GMAC on Monday. “The company's

non-automotive activities also continue uninterrupted.”

GM’s bankruptcy filing is the fourth-largest in U.S. history

and the largest for an industry company. The company said it has $172.81

billion in debt and $82.29 billion in assets.

 

As it reorganizes, GM will rely on $30 billion of additional

financial assistance from the Treasury Department and $9.5 billion from
Canada. That’s

in addition to nearly $20 billion in taxpayer money GM has received in the form

of low-interest loans.

 

Through the reorganization the federal government will take

a 60 percent ownership stake in the new GM. The Canadian government would take

12.5 percent, while the United Auto Workers union would own 17.5 percent. The

remaining 10 percent would be held by unsecured bondholders, while all existing

GM shareholders were expected to be wiped out.

With most auto observers expecting GM to enter bankruptcy by

its June 1 deadline to present a viability plan to the presidential automotive

task force, it was clear early on that GMAC would not face the same uncertainties

surrounding Chrysler Financial after Chrysler LLC filed for bankruptcy on April

30.

Shortly after Chrysler announced its filing, a

representative of the Obama administration said GMAC would become Chrysler’s preferred

lender, a union that included a four-year deal for incentivized retail

financing.

The Treasury Department followed up the government’s

endorsement by agreeing to a $7.5 billion capital investment for GMAC, $4

billion of which would go toward financing Chrysler’s retail and dealer

customers. The deal was approved by the U.S. bankruptcy court on May 12.

 

GMAC, which had received $13.5 billion up until that point,

also gained approval by the Federal Deposit Insurance Corporation (FDIC) to

participate in the Temporary Liquidity Guarantee Program (TLGP), as well as an

expanded exemption granted by the Federal Reserve to originate GM-related assets

at GMAC’s bank, which will operate as Ally Bank.

As for Chrysler Financial, which had temporarily suspended

floorplan financing and participation in subvented annual percentage rate (APR)

programs, Chrysler’s bankruptcy filing put into jeopardy several of its lender

agreements. And while the company resumed subvented APR program on May 20,

officials said negotiations with creditors is ongoing.

Chrysler Financial has given no indications that it would

follow Chrysler into bankruptcy, and GMAC officials said Monday that the

company has not intentions of do so either. “GMAC is a bank holding company

with a newly appointed board of directors and a diversified ownership structure,”

read a statement from the company. “GMAC has not filed for bankruptcy, nor does

it intend to, and the company continues to meet all of its obligations.”

 

 

 

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  

CLOSE [X]

READ NEXT

Dealer Council Voices Support for Chrysler Reorganization

The Chrysler National Dealer Council, comprised of 17 Chrysler, Jeep and Dodge dealers elected by the dealer organization to represent all dealers' interests, sent a letter to customers Tuesday stating support for the company's organizational overhaul.