Congressional panel wants GMAC to break up

The Congressional Oversight Panel, created as a watchdog for the Treasury’s use of funds allocated in the Troubled Asset Relief Program (TARP), says GMAC still does not have a viable business plan after receiving $17.2 billion in government cash.

The panel is also critical of the Treasury Department’s handling of the GMAC case, saying the Treasury has been lax in requiring the finance company,which also handles consumer loan and floorplan financing for Chrysler Group dealers, to set out a clear course to becoming independently viable and repaying the taxpayers’ investment.

In a statement, the panel suggested breaking up GMAC and folding its automotive business back into former parent company General Motors. This would create a captive finance company similar to those used by other vehicle manufacturers.

To read the full report and see a video from Professor Elizabeth Warren, head of the panel, go to “The Unique Treatment of GMAC under TARP” on the Congressional Oversight Panel’s website.

GMAC investment pays millions for government

Automotive News reports the government’s lifeline to GMAC is already paying dividends. The bank, which replaced Chrysler Financial as the primary lender for Chrysler dealers and customers, just declared a quarterly dividend worth $129 million on the preferred stock issued to the U.S. Treasury at the end of 2009. The most recent payment is on top of $141 million paid in December when the feds put another $3.79 billion in the kitty.

The U.S. government is the majority owner of GMAC. Former majority owner, Cerberus Capital Management, holds a 15% share.

Treasury takes over majority of GMAC

The United States Treasury will invest another $3.8 billion in GMAC, which handles loans for General Motors and Chrysler vehicles. In return for its total $17.2 billion investment, the U.S. government will own 56% of GMAC; the additional $3.8 billion raised the government’s share from 35% to 56%.

The government had been predicted to invest $5.6 billion in GMAC by this time.

While the government owns over half of GMAC, it will only appoint four of the directors, out of nine.

The additional funding will mainly be used to deal with losses at the ResCap and the mortgage unit. GMAC’s CEO said he expects the U.S. to be fully repaid, as it was by some of the banks who were extended credit. Following this, GMAC does not expect to lose money from ResCap.

GMAC’s former majority owner, Cerberus Capital Management, now holds under 15%. Other investors hold around 12%, while a trust for GM holds 10% and a GM affiliate holds under 7%.

For this investment, the government will receive $2.54 billion in Trust Preferred Securities (the highest priority capital securities) and $1.25 billion of Mandatory Convertible Preferred Stock, and will purchase an additional $127 million of TRUPs and $63 million MCP at the closing of the transaction.

Chrysler may cut more dealers in credit crunch

Chrysler Group may have to cut another 145 dealers unless they can find a new source of financing. That’s because the dealers have been unable to qualify for financing from GMAC, Chrysler’s primary financing source.

The dealers have been caught in the in the transition from Chrysler Financial to GMAC. They have existing mortgages and floorplan debts through Chrysler Financial which refuses to give up its rights to first call on assets. In addition, much of the mortgaged real estate is now worth less than the mortgages. Chrysler Financial is no longer offering floorplan financing for Chrysler products.

Dealers had until the middle of this month to qualify for GMAC funding or obtain ongoing financing from another source.

40 Chrysler dealerships at risk over financing flap

The National Automobile Dealers Association says as many as 40 Chrysler dealerships may be threatened with foreclosure because of the ongoing dispute between GMAC and Chrysler financial.

“The parties have taken inconsistent positions and dealers are stuck in the middle,” said Forrest McConnell, an official with NADA. The dealer group says the affected dealerships are viable but may be unable to get floorplan financing since the two finance houses can’t agree on their status as creditors. GMAC assumed the role of captive finance source for Chrysler Group dealers when the automaker came out of bankruptcy. The U.S> government ordered the change because GMAC, due to its status as a bank, had better access to capital than Chrysler Financial, which is owned by Cerberus Capital Management.

The problem is the dealers have existing floorplan loans and mortgages with Chrysler FInancial and have only until the middle of next month to get set up with GMAC for new financing. Without the floorplan loans, dealers will not be able to order fresh inventory. GMAC is asking for more collateral, saying the value of the vehicles isn’t enough, and Chrysler Financial refuses to give up its position as the creditor with first demands on assets.

In better times the dealers might have been able to borrow against the value of their property or get other financing from commercial banks. However, plunging real estate values have left some dealers owing more than their property is worth and, as one dealer noted, “…(T)here’s not a bank on the planet that will loan a dime to any Chrysler or GM dealer.”

Government, Cerberus at odds over fate of Chrysler Financial

The U.S. Treasury’s special master and Cerberus Capital Management LP reportedly have a difference of opinion when it comes to the future of Chrysler Financial.

In a document issued yesterday, Kenneth Feinberg, the special master overseeing executive compensation at the seven firms that received government bailouts, said, “Chrysler Financial is currently pursuing a successful wind down of its operations by Dec. 31, 2011.”

Feinberg also outlined pay cuts for top executives at Chrysler Financial. Cash compensation will be cut by 30 percent and total compensation will be cut by more than half. Feinberg said no one at Chrysler Financial should have a base salary exceeding $500,000.

The Treasury acknowledged that Chrysler Financial, which was not part of the Chrysler LLC bankruptcy, is still in business but confirmed they expect Chrysler Financial to close up shop in just over two years.

Cerberus, on the other hand, which owns Chrysler Financial, says it has no plans to shut down the operation and is not aware of any government-imposed requirement that the auto financing company be liquidated.

A Treasury official, speaking off the record, said liquidation plan was “a current aspiration, not a plan that is set in stone…” The official added the Treasury’s position was based on discussions and information received from the company.

Neither Chrysler Financial nor Chrysler Group had any comments on the matter.

Chrysler Financial still has about $26 billion in loans outstanding to Chrysler dealers and consumers but lost its position as the preferred source for Chrysler financing to GMAC. At one time, Cerberus was also the majority owner of GMAC as well as Chrysler Financial but the holding company divested the majority of its interest when GMAC received bank status rather than comply with the required financial disclosures. Chrysler Financials’ application for bank status was withdrawn for the same reason. Since that time, Chrysler Financial has closed a service center in Overland Park, Kansas, and has laid off 360 workers at various locations including its headquarters in Farmington Hills, Michigan.