What’s good for GMAC

Los Angeles Times: A year after the Big Three implored Congress to save their industry from collapse, the fortunes of U.S. automakers are looking up. Ford, which lobbied for the bailout but took no aid directly, recently reported its second consecutive quarterly profit. General Motors, which emerged from bankruptcy with the U.S. government as its biggest stakeholder, announced even better sales in October than Ford. It’s harder to find good news out of Chrysler, which has received $13.8 billion in federal aid. But at least its new leadership announced plans this month to break even by 2011 and pay taxpayers back by 2014.

Sobering announcement

Nevertheless, on Monday the Federal Reserve issued a sobering announcement that GMAC -- the former financial services arm of GM turned bank holding company -- still needs to shore up its balance sheet. Its problem isn’t the loans it provides to GM and Chrysler dealers and customers, it’s the bad bets it made on subprime mortgages during the housing bubble. The company is negotiating with the Treasury Department for another multibillion-dollar loan from the Troubled Asset Relief Program, a deal that is expected to be approved soon. The new aid will come on top of the $8.5 billion in TARP loans GMAC has already received, as well as the billions of dollars in loan guarantees and the government’s 35 percent stake in its common stock.

One of the arguments for lending GMAC more money despite its troubles is that its financing is key to GM’s and Chrysler’s recovery. Despite the Fed’s efforts to lower interest rates, auto loans from independent banks continue to carry significantly higher interest rates than those provided by GMAC and the lenders affiliated with other automakers. The latter also tend to welcome riskier buyers than other lenders will support.

The Associated Press. All Rights Reserved.