Thread: American Automakers get their money.

Filed under: Etc., Government/Legal, Canada
Canada officially approves its own $4 billion auto aid package

by Jonathon Ramsey on Dec 21st 2008 at 10:11AM
True to their word, the Canadians came through with an aid package to support the auto industry, namely GM and Chrylser. The amount to be loaned is $4 billion Canadian, with $2.7 billion coming from the national government and $1.3 billion coming from Ontario, where much of the industry is based. With the conversion from Canadian to U.S. dollars at today's rates, that works out to just about the 20-percent that was promised. Parts suppliers in Canada will also have access to the money, and some portion of the loan will also be used to provide impetus to get banks to lend money to buyers. Yet, as with the American loan, it won't last long: one analyst said "It probably only buys them three months or four months where they can get their ducks in order ... and hopefully come up with a plan to get everything straightened out so that they can survive."

Filed under: Government/Legal, GM, Earnings/Financials
Fed grants GMAC bank holding status

by Jonathon Ramsey on Dec 24th 2008 at 7:57PM
GMAC – and ergo General Motors – just got another Christmas present: the Federal Reserve has granted GMAC bank holding status. GMAC has billions of dollars of bonds coming due over the next 12 months, but doesn't have the liquidity to cover the obligations. As of last week, the financing company was in the midst of a bond buyback effort in order to raise enough money to qualify for bank holding status. Now that it's been granted, GMAC can tap the Troubled Asset Relief Fund intended for financial institutions, pay its debts and (probably) avoid bankruptcy.

It isn't clear, however, whether or not GMAC actually raised enough money through the bond buyback. The Fed said "emergency conditions" justified its actions, which makes us think the Fed just said "Here, take it." Looked at from a dealer perspective, it makes sense: if GMAC had gone under, one dealer estimated that it would have taken 30-40% of GM dealers down with it, and that could imperil GM itself. It wouldn't make much sense to let that happen when the government just loaned GM a bunch of money to stay in business.

And while GM is still a long, long way from getting the kind of money that any number of banks have, it's still beginning to add up. As a result of the new status, both GM and Cerberus are required to lower their stakes in GMAC. Cerberus has been told to lower its share to 33%, down from 51%; GM has said it will go below 10%. As for Cerberus' other headache, Chrysler Financial, it has said that if dealers don't stop making a run on its funds, it will cease financing for dealer inventories.