GMAC will be loan source for Chrysler buyers
— -- Consumers buying a Chrysler now will have a seemingly unlikely lender: GMAC.
As part of Chrysler's bankruptcy restructuring plan announced Thursday, General Motors' finance arm will be the preferred lender for anyone buying new Chrysler vehicles. GMAC Financial Services is co-owned by GM and private-equity firm Cerberus.
That will end Chrysler's history of providing loans to its own consumers and gives GMAC access to more borrowers as it tries to head off it own financial woes. In December, GMAC morphed into a bank holding company and took $5 billion in cash from the government. The government is providing additional capital to GMAC as part of the Chrysler deal, but terms are not disclosed, says GMAC spokeswoman Toni Simonetti.
"We have the resources and capital to take on new volume of business," she says. Investors in GMAC's preferred stock liked what they saw, pushing the shares up more than 19%. If sales of new cars perk up, GMAC now should be better positioned to profit, says Doug Christopher, analyst at Crowell Weedon.
But there are many hurdles to overcome. GMAC is in poor financial health, and its future is clouded by the condition of GM, says Chris Whalen at Institutional Risk Analytics.
Also, as part of GMAC turning into a banking holding company, owners GM and Cerberus must reduce their roughly 50% stakes. Cerberus must own less than 15% of GMAC, and GM less than 10%, Simonetti says. Finding investors could be difficult after what has happened to Chrysler's financial operations, Whalen says.
Meanwhile, there are questions as to the future of Chrysler Financial, the financing arm of Chrysler not included in the automaker's bankruptcy protection proceeding.
Chrysler Financial, which is primarily owned by Cerberus, plans to maintain its current portfolio of $50 billion in loans, says spokesman Bill Porter. Past Chrysler borrowers will keep making their payments to Chrysler Financial. In addition, Chrysler Financial will extend vehicle financing until GMAC takes over, he says.
