Santa Fills GMAC’s Stocking; Taxpayers Get Lumps of Coal

It was a good holiday for GMAC. In case you missed it (after all, the news conveniently broke the week when few people pay attention), the government agreed to give the lender another $3.8 billion in additional bailout funds. In return, the U.S. Treasury Department and the government (i.e., we the people) will have a controlling stake in the company.

The new infusion of cash comes on the heels of nearly $13.5 billion the government already doled out to GMAC since December 2008.  The government hopes thats that additional funds will bring the auto and mortgage lender to profitability in the first quarter of 2010. Moreover, the move is aimed at keeping GMAC’s mortgage lending arm – Residential Capital – out of bankruptcy.

The new bailout doesn’t come without strings. The Treasury upped its stake in GMAC to 56% (it had been at 35%).  Given the struggling state of other U.S.-backed mortgage lenders (Fannie and Freddie), however, GMAC is likely to follow its troubled siblings’ examples.  First, if commercial real estate is in fact the next bubble waiting to pop, then GMAC may be on shaky ground given that it’s a 21% stakeholder in Capmark Financial – a leading commercial real estate lender – filed for bankruptcy at the end of 2009.  Second, much of GMAC’s business is wrapped up in auto lending, and despite the fact that it showed some signs of life in late 2009, that may have been a one-time-only surge prompted by the “cash for clunkers” program. In the absence of such incentives, projections for growth in auto purchases (and consequently auto lending) may fall below expectations.

Nonetheless, GMAC has been relentless in targeting new customers. Ally Bank (formerly GMAC Bank) has been offering “high” interest rates to generate new accounts. Ally’s holdings amount to about 29 percent of GMAC’s assets (By the way, did anyone else miss the line in the onslaught of Ally Bank commercials that it was the new incarnation of troubled GMAC?)

So, what becomes of that 56% stake the government now has in GMAC? Is it a sound investment in a future profit? A look at the numbers would make even the most novice investor hesitate: In November 2009, it reported a quarterly loss of $767 million – an improvement over 4Q 2008 – but homeowners continue to default, and if unemployment continues to hover around 9 or 10%, it could mean more defaults. I’m going to call this one a lump of coal for the time being.

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   Joe T. says:

   January 19, 2010 at 11:08 am

   The blog was positively fantastic! Lots of nice information and animus, both of which we all need!