Wednesday 3rd of March 2021

Related Articles

U.S. Cracks Down on GMAC Auto Financing

Accept the government’s help, and you implicitly agree to accept the government’s terms. GMAC Financial Services, the auto financing company for GM and Chrysler car buyers, is learning this principle the hard way. The company took bailout money from the federal government ten months ago, and now the government is tightening its leash on the organization.

Prior to the new regulations, a subsidiary of GMAC, Ally Bank, had some of the highest deposit interest rates in the country. Federal bank regulators took notice, deemed the high-rate strategy dangerous, and forced Ally to reduce its bank-deposit rates and scale back lending to car buyers with poor credit.

Since accepting bailout money, the company has had several ugly confrontations with regulators over its future plans and business strategy. The organization has gone several rounds with the FDIC about its plans for a comeback. Presently, the company is embroiled in a debate with the Fed about the sufficiency of their capital levels. The Federal Reserve is leaning on the company to accept billions of additional dollars in federal assistance from the Treasury Department.

Within the GMAC corporation, execs are frustrated with the tight leash the regulations have created. Some executives believe the excessively tough regulation is thwarting its plans for a financial recovery. In an effort to skirt further regulation, execs even petitioned to switch the charter for Ally Bank from the FDIC to the Federal Reserve. The organization abandoned these plans on Tuesday.

Most of GMAC’s woes stem from the fact that the government has several conflicts of interest in the matter. On the one hand, the government needs private lenders to provide generous amounts of credit to cash-strapped consumers. Then again, the government cannot risk allowing financial companies to engage in the high-risk lending that contributed to the existing crisis.

The CEO, Al de Molina, claims that the company’s lending strategy “does not represent undue risk” and “in no way led to the credit crisis.” Molina stated, “All we are trying to do is to make loans to small businesses and consumers in support of the auto industry.”

GMAC was previously owned by General Motors Corporation. The company’s mission was to offer financing to dealerships and car buyers. Eventually, about 80 percent of GM dealerships relied on GMAC Financial Services to get vehicles on their lots. Recently, it has expanded into other arenas, such as commercial finance, auto insurance, and real estate. In 2006, GM sold a majority stake of GMAC to Cerberus Capital Management, a private-equity firm.