Even If GM Lands in Chapter 11, Its GMAC Financing Arm Might Not Follow

By Kendra Marr
Washington Post Staff Writer
Wednesday, May 6, 2009

GMAC, the financing arm of General Motors, said yesterday it would not necessarily be dragged into bankruptcy court if the automaker fails to meet its restructuring deadline and files for Chapter 11 protection.

A bankruptcy of its biggest customer is sure to hurt business, Robert Hull, the lender's chief financial officer, said on a conference call with investors yesterday. But the two companies now operate as separate entities and don't guarantee each other's debt.

"We want to see GM succeed, that's for sure, but we are taking the appropriate steps to prepare GMAC for whatever might happen," he said.

GMAC posted a $675 million first-quarter loss, compared with a loss of $589 million a year earlier. The company has struggled to cope with the frozen credit markets that have virtually halted its new-car and home loans and contributed to losses on its older-car loans and mortgages. But GMAC chief executive Alvaro G. de Molina also noted signs of progress, including its reentry into the prime jumbo mortgages market and expanding retail auto lending.

Last year, after completing a debt swap, GMAC became a bank holding company, gaining access to a $5 billion capital infusion from the Treasury Department's financial rescue plan. With this aid, GMAC financed loans for about 17 percent of GM customers in the first quarter, Hull said.

GMAC now plans to diversify its business beyond GM, a condition of becoming a bank. Soon GMAC will become the preferred lender to Chrysler's dealers and customers. GMAC won't inherit Chrysler Financial's old loans and leases.

"The U.S. government has indicated and intends to support GMAC and this effort of making liquidity and capital available to support the Chrysler business," Hull said.

Like Chrysler, GM is arguing with bondholders over the concession terms. Ultimately it was Chrysler's creditors that pushed the automaker into bankruptcy by balking at the government's offer. But in an interview yesterday, GM chief executive Fritz Henderson warned against drawing parallels.

"We're not identical companies," Henderson told reporters in Washington. "But it is relevant and should be watched."

As it negotiates stakeholder concessions, GM may offer shareholders one share of new stock for every 100 shares they now own, according to a Securities and Exchange Commission filing yesterday. The deal is a part of an agreement with the Treasury to trade at least half of GM's debt to the government for stock in the automaker.

The United Auto Workers said it is prepared to accept the same sacrifices it made for Chrysler in order to restructure GM by the end of the month, yet it opposes GM's plan to close 16 manufacturing facilities, including four assembly plants.

"GM should not be taking taxpayers' money simply to finance the outsourcing of jobs to other countries," UAW legislative director Alan Reuther wrote in a letter to lawmakers yesterday.

Henderson said "everything should be on the table" in talks with the union.

Staff writer Peter Whoriskey contributed to this report.

© 2009 The Washington Post Company