GMAC Gets the Obama Administration 'Spin' Treatment

On the campaign trail, President Obama pledged to bring fairness and openness to the federal government.

Apparently, he’s also brought PR spin.

Last night, I participated in a conference call for media “on deep background with Administration officials” (they actually tell you on the call that you have to refer to it as such) about the Department of the Treasury’s infusion of capital into GMAC LLC. One of the reporters on the call asked the administration officials whether the federal government would dictate the terms of the loans GMAC would make. For example, would the government specify what rate they would charge Chrysler dealers for floorplan financing?

The administration official replied that it would not. Rather, GMAC would lend with its “fiduciary duties” in mind and make loans in its best interest. The administration official then went on to tout GMAC as being “really good” at making auto loans, and how the administration could rely on GMAC to lend smartly.

Welcome to the Obama administration spin zone. If GMAC was as good a lender as the administration officials say it is, it wouldn’t touch a Chrysler floorplan deal today, particularly if the dealer’s business was comprised of more than 50% new car sales. There’s not a lender out there now that wants to take on a Chrysler floorplan risk – a sentiment clearly voiced at our Auto Finance Risk Summit this week. To present the lending GMAC will do in place of Chrysler Financial as “good business” on the part of GMAC is absurd. GMAC is operating at the behest of the federal government, plain and simple. The additional Tarp capital it is receiving mirrors the make-good capital infusions Bank of America Corp. got after it was laden with Merrill Lynch & Co. To call this anything else is just PR spin.

Personally, I think the Obama administration’s “spin” is, in fact, a disservice to GMAC. GMAC has worked hard over the last six to nine months to rejuvenate and revitalize its risk management apparatus. GMAC doesn’t deserve to be tarred with the badge of “prudent lending” when at least some of its Chrysler Financial-related activities are anything but that. Rather, GMAC is taking one for the team, and that is the badge GMAC should wear with pride.

Tags: bailout, chrysler, gmac, obama

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Comment by David Ruggles on May 22, 2009 at 5:06pm: First, let me say that those who missed the conference in Miami missed some really important stuff! Thanks JJ for putting on a GREAT conference.

I wrote weeks ago that I thought independent lenders were crazy for floor planning Chrysler products when it became apparent that Chrysler was going to use bankruptcy court to escape the inventory buy back clause in it's franchise agreements. I could understand Chrysler Credit floor planning Dealers if they had the means to do so. I also couldn't understand why an independent lender would finance a Chrysler product on the same basis as other make vehicles. We found out at the conference that lenders have, in fact, started looking at reducing their exposure for loans with Chrysler vehicles as collateral.

I lived through the first Chrysler "bailout" go round as a Chrysler Dealer. I was in my early thirties and didn't understand everything that was going on around me at the time. Because our store was profitable I was able to obtain floor planning twice during the crisis. I didn't realize what a feat it was. Looking back, those banks should never have granted us floor planning. BUT it all turned out OK. Try as I might, this time around things are MUCH different. And I'm older, wiser, and more conservative. GMAC should absolutely refuse to floor plan Chrysler vehicles as it looks like there will be a large number of Chrysler vehicles to be liquidated through auction. Loaning 100% on an asset worth 50% of the value loaned is not fiduciary in any sense of the word.

A Dealer friend, rejected by Chrysler in 2 of his 3 Chrysler stores, told me that a number of banks "stiffed" on Chrysler Dealer floor plans have threatened to refuse to floor or finance ANY Chrysler products from now on. Many of the remaining Chrysler Dealers have neither the will nor the financing to take over inventory from "rejected" Dealers. This leaves the banks holding the bag. These "New" Chrysler vehicles will find their way to auction with no rebates or incentive dollars available. The chaos will take months to work through. As Paul Melville, an auto industry expert from Grant Thornton noted on one of the more interesting panel discussions at the conference, banks who have been TARPed will probably be told who they will and won't floor plan or finance. I'm sure this will also go for GMAC, or should I start calling them Ally Bank?

Comment by JJ Hornblass on May 22, 2009 at 5:32pm: First, thanks for the props. It was great seeing you at the Risk Summit, David.

Of course Paul is right that TARPed banks are getting marching orders. What I found most unsettling was how these Obama administration officials (these were not low-level bureaucrats, mind you) could say otherwise.