Government Wants GMAC to Buy Chrysler Financial

News out of Washington, D.C. this morning has the government working to engineer a deal for GMAC to purchase Chrysler Financial.

Chrysler Financial is running out of money, according to the article in the Washington Post, but GMAC would also need an infusion of capital to purchase its captive competitor, according to the report. GMAC became a bank holding company in December.

The FDIC and Federal Reserve would both have to sign off on the acquisition. According to the Post:

[GMAC] also needs access to an FDIC program that allows companies to borrow money at lower interest rates, sources said. And administration officials want the Fed to relax a rule that would restrict the amount of loans that the enlarged GMAC could make to Chrysler's customers and dealers because both firms are owned in part by the same company, Cerberus Capital Management.

Tags: GMAC, chrysler, financial

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Comment by JJ Hornblass on April 28, 2009 at 4:52pm: There are (at least) two issues here. First, folding Chrysler Financial into GMAC is yet another example of compounding risk when risk should be diffused. GMAC itself continues to address risk-related issues as a result of its mortgage banking operation. Why pile on to that with Chrysler Financial's risk?

Second, Chrysler Financial doesn't need to be "rescued," Chrysler Financial's floorplan paper and servicing portfolio need to be acquired. There is little distinct value-add that Chrysler Financial provides that cannot be delivered by other finance providers -- GMAC included. I don't see why the federal government should be exerting its time and effort (collectively known as money) on facilitating this transaction. If it were focusing on Chrysler Financial's floorplan and servicing assets, I would understand -- particularly if Chrysler LLC was indeed headed for bankruptcy protection. But it is not. I'd stamp this government effort "misguided."

Comment by Marcie Belles on April 29, 2009 at 10:14am: To your point about compounding GMAC's risk, I agree 100%. Some companies just need to be left to go away when the time is right. Chrysler Financial securitizations have been downgraded because of higher-than-expected losses stemming from loose underwriting and extended-term loans gone sour. Why drag down GMAC with that kind of loan performance?

The dynamic is similar to what's always happened when auto financiers originated too aggressively: They would undercut the competition for a while, then go belly-up. I think it's time to let Chrysler Financial face its destiny.