The turmoil in the auto industry with its links to the U.S. financial system continues to churn. GMAC, the auto and mortgage lender, stands to receive “substantial support” from the Treasury Department. Some published reports estimate the amount of support to be around $7 billion.
Then, in a sweeping public relations move, it announced that its banking arm, GMAC Bank, becomes a “new” bank called Ally, which, according to its marketing materials, “aims to make money with customers not off customers.” Ally and its parent company already have a lot of customers. In fact, you may find yourself, intentionally or not, with this new “Ally” in your life, thanks to its relationships with individuals, businesses and the government.
These developments would not be quite so dramatic if the parent company, GMAC LLC, had a long history as a bank, a la Bank of America or Citigroup. But GMAC has only been a bank holding company since December 2008. That’s when the Federal Reserve Board christened it one with an emergency order as part of its effort to “save” the auto industry. With that order, it became qualified to receive funds from the Troubled Asset Relief Program, or TARP, and $5 billion was transferred to the company.
GMAC seems to be headed in the same direction as Fannie Mae and Freddie Mac, the troubled government-sponsored enterprises.
In what it called a “stress test” to show financial stability, the government says that GMAC needs to raise about $11.5 billion by this November, and $9.5 billion of that must come from new sources. The goal, of course, is to raise that capital from private sources. If it doesn’t, the government will most likely come to the rescue again. But this time, it will take over as a shareholder, possibly one with a controlling interest.
By shedding its old image, GMAC hopes to get some of those private sources — including lots of individual customers — to step up to the plate and do business with Ally. In exchange, Ally’s FDIC-insured accounts are requiring no minimum deposits or balances; have no penalties or fees; and at press time, it offered competitive rates, according to Bankrate.com’s one-year CD and savings account comparison tools.
In reality, GMAC’s government bailout is really yet another way to save the auto industry since GMAC now has become a leading lender to Chrysler and General Motors buyers and dealers.
It’s also a way to help the sagging economy by putting more dollars into circulation through its auto-related loans, GMAC mortgages or business loans, and Ally’s FDIC-insured accounts.
Experts say it is unlikely GMAC will raise enough money privately to keep the government from stepping in. If it doesn’t raise the capital, it has the potential of becoming a bank that is both owned and regulated by the government. If that occurs, a number of questions could be raised over possible unfair advantages over competitors, such as Ford, and the ability of the feds to mandate the way it does business.
For example, in the wake of the credit meltdown, GMAC raised its minimum credit score for borrowers to 700. After the government injected its first chunk of capital earlier this year, GMAC lowered those scores to 621.
No one knows how all of this will shake out. For that, only time will tell.
Tara Baukus Mello is a freelance writer who has written about automotive topics of interest to consumers since 1995. If you have a car question, e-mail it to us at Driving for Dollars.