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.”