Bailout Bank Bio: GMAC

Dec 11, 2009 | 7 min read | Print Article

Founded in 1919 as the General Motors Acceptance Corporation, GMAC is an important company in both the auto and home finance industries. GMAC transformed itself into a bank last December in order to access Treasury's TARP. It is now one of the largest U.S. bank holding companies.

GMAC was one of the 19 financial institutions subjected to Treasury “stress tests” to see if they retained enough capital to weather future financial storms. Treasury determined ten banks needed to raise an additional $74.6 billion, and GMAC in particular had to find another $11.5 billion. GMAC failed to raise the full amount. GMAC is now turning to taxpayers for up to $5.6 billion more.

GMAC’s survival is perceived as vital to returning US car manufacturers to profitability. GMAC acts as the main financing vehicle for both new purchases of GM cars and for wholesale inventory at GM dealers. And starting in April, it began doing the same for Chrysler dealers and purchasers. Through a subsidiary, GMAC is also the fifth largest mortgage servicer and one of the largest participants in the Home Affordable Modification Program (HAMP); Treasury's mortgage modification program under TARP.

Upadated 12/11/2009

GMAC Financial Services is a global finance company operating in and servicing North America, South America, Europe and Asia-Pacific. It was founded in 1919 as a wholly-owned subsidiary of General Motors, Corp. In November of 2006 Cerberus Capital Management, a private firm, and a handful of partners purchased a controlling 51% interest in GMAC. GM continued to hold the remaining 49% ownership stake. But in late December 2008, when GMAC began to participate in the Treasury Department’s bailout of the financial sector, Cerberus reduced its ownership in GMAC by distributing shares of the company to its co-investors. This enabled Cerberus to avoid becoming a bank holding company, which would have brought the company under greater federal oversight.

Under Treasury’s Troubled Asset Relief Program (TARP), GMAC received $5 billion in exchange for preferred stock and warrants. In addition, Treasury agreed to lend GM up to $1 billion so it could participate in a rights offering at GMAC as it reorganizes into a bank holding company. In January GM made use of that loan, using $886 million to increase its ownership stake in GMAC to just under 60%.

According to Forbes, GMAC is the country’s fourth largest private U.S. company. Among all U.S. companies, Fortune lists GMAC as the country’s 78^th largest. GMAC is the sponsor of one of college football’s annual bowl games. Fortune also ranks GMAC as among the biggest financial losers (based on 2007 financials) of the Fortune 500. Early this year GMAC posted a $7.46 billion profit after five straight quarters of posting a loss. In the fall of 2008, due to low cash reserves, GMAC was forced to choose between financing GM dealerships’ operating expenses and financing car loans for vehicle purchases. GMAC chose to support the dealerships and for a time did not write any car loans. The company has since resumed financing car loans. At least one analyst believes the U.S. auto industry might be better off if a company like GM were to declare bankruptcy.

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Bailout Bank Bio: GMAC


Federal Equity Investment	Auto Industry Financing Program: $13.5 billion disbursed Negotiating up to $5.6 billion more HAMP: Up to $3.55 billion
Total Revenue	$10,303,000,000 (2007) $17,050,000,000 (2008)
Net Income (Loss)	$(2,332,000,000) (2007) $1,868,000,000 (2008)
Number of Employees	Approximately 26,700 worlwide (12/31/2007) Approximately 22,700 worldwide (12/31/2008)
Corporate Headquarters	Detroit, Michigan
Business Sector	Financial Services
Officers and Directors	Alvaro de Molina, Chief Exec. Officer and Chief Operating Officer Other officers and directors
Corporate Website	http://www.gmacfs.com/us/en/index.html
Executive Compensation	GMAC (see page 151)