Exclusivity Between GMAC, GM Ends
As part of a deal to access billions in federal aid, GMAC is now allowing General Motors to offer financing through third-party lenders, according to a Jan. 2 filing with the Securities and Exchange Commission (SEC).
As part of a deal to access billions in federal aid, GMAC is now allowing General Motors to offer financing through third-party lenders, according to a Jan. 2 filing with the Securities and Exchange Commission (SEC).
The captive finance company, 51 percent owned by Cerberus Capital Management and 49 percent owned by GM, said GM can now offer financing incentives, including leasing and zero-percent loans, through other lenders in certain circumstances until 2013. The filing also said GMAC won’t have to provide lease financing.
GMAC has had an exclusive deal with GM since 2006, requiring GM to offer any competitive finance promotion through GMAC until 2016.
The termination agreement, which was completed on Dec. 29, was part of GMAC’s efforts to raise sufficient capital to meet the Federal Reserve’s requirements for becoming a bank holding company.
The move could also reduce the Detroit automaker’s dependence on GMAC to provide financing, and possibly boost its sales by giving consumers more options for affordable loans.
The captive finance company said the government will get five million preferred shares of GMAC that pays 8-percent interest in exchange for its $5 billion capital injection to help the company avoid bankruptcy.
Additionally, GMAC said in its filing that the government exercised a 10-year warrant to buy 250,000 more GMAC preferred shares for a penny each.
The captive finance company said if the Treasury does not get interest payments on its preferred shares for six consecutive quarters, or more than six non-consecutive quarters, it will get two seats on an expanded GMAC management board.
The filing comes after GMAC’s announcement last week that it would loosen its lending criteria to include retail financing for customers with a credit bureau score of 621 above, which was a significant expansion of credit compared to the 700 minimum score put in place more than two months ago. The announcement also comes after GM’s announcement that it would offer zero-percent or low-interest financing through GMAC on certain models. The federal aid GMAC received made both moves possible.
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