What If GMAC Falls Out of Its Tree?

With all the attention that is being paid to U.S. automobile manufacturers as of late, another unfolding story is the plight of GMAC LLC. The financing arm of General Motors is sinking and there seems to be very little will left to save it. You see GMAC has $540 million of bonds due this month (December) and another $11.6 billion that mature in 2009 so it is desperately trying to become a bank holding company to gain access to TARP money. The fly in the ointment is, of course, is money or rather the lack of it. It's hard to believe it, especially given the way that the Fed has been throwing money to financial firms already, but there actually are some capital requirements to become a bank holding company and so far GMAC is far from meeting them. GMAC has now extended its deadline (again) for debt holders to convert existing debt, but as of yet GMAC isn't seeing the turnout it had hoped for.

What if GMAC goes into bankruptcy? Well, a wide swath of GM dealers may bite the dust. “There’s so many dealers on the edge, if GMAC goes out of business 30 to 40 percent of dealers won’t be able to get financing from anywhere else,” Martin NeSmith, a liaison to the lender as a member of GM’s National Dealer Council, said in an interview yesterday. "The likelihood of getting floorplan from anyone else is very much in doubt. Dealers are scared to death.” While GM is looking to pare down its dealer body, it's doubtful that it would like to see them go this way.