DealZone

Santa for automakers, Grinch for taxpayers?

December 30, 2008

grinchA company in the U.S. auto industry fails — and the government steps in as savior. Yet again. That’s right. Santa visits the automakers this year while the Grinch steals taxpayers’ Christmas.

The Bush administration is buying $5 billion in equity in GMAC – the finance arm owned by GM and Cerberus Capital Management. The Treasury has also offered a new $1 billion loan to GM so the automaker could participate in a rights offering at GMAC.

Yes, this in addition to the recent $17.4 billion emergency loan to save GM and Chrysler from bankruptcy.  In fact, the government already helped GMAC last week, when the Federal Reserve approved the finance company’s application to become a bank-holding company.

But the Fed’s approval was conditional on GMAC raising new capital.

GMAC said it had raised enough capital to satisfy the Fed’s conditions just as the Treasury announcement on Monday.

The Treasury’s generous moves help Cerberus just as much as they help the auto industry. Cerberus bought 51 percent of GMAC in 2006 and 80 percent of Chrylser last year. The private equity firm has been stung by both those investments as U.S. auto sales have plunged to record lows amid a sinking economy following its purchases.

A happy coincidence: Cerberus Chairman John Snow was the Bush administration’s treasury secretary before Henry Paulson.

The GMAC loans, as well as the original $17.4 billion in aid, come from a program within the Troubled Asset Relief Program to make investments directed at the auto industry. A Treasury official told the Wall Street Journal the new program did not have a specific dollar limit. Now there’s a scary thought.

DEALS OF THE DAY

** China’s three leading steel mills agreed to merge into one entity via share swaps which will create the country’s largest listed steelmaker and further speed industry consolidation. 
       
** Suzlon Energy Ltd, the world’s fifth largest wind turbine maker, said it had raised its stake in Germany’s REpower to 73.71 percent by paying Portugal’s Martifer 65 million euros ($91.98 million). 

** Nationwide Mutual Insurance Co will go ahead with the buyout of its unit Nationwide Financial Services Inc at a price struck months before life insurers were hammered by the market turmoil, the Wall Street Journal said. 

** PCCW’s financial advisers said the takeover offer for the company had been raised to HK$4.50 per share from HK$4.20, in a move aimed at prompting minority shareholders’ support for the buyout.

Comments
2 comments so far | RSS Comments RSS

I do not agree with the government solution, of just throwing money, at the problem. Do we even know, what the balance sheets of this and/or any of these bailout companies are ? We, the little people, will be paying for this bailout, sooner or later, but we will pay. Why ? Simple, our government doesn’t have this money, but never gets denied for a loan. Amazing…I should go apply for a bailout too…

 

so does this mean that it will be easier for us taxpayers to get cars manufactured by gm, financed by gmac at better rates no matter what our credit rating is? after all they ought to give taxpayers a huge discount considering that we have to back them financially after sqandering profits made from selling us a sub-par product in the first place

Posted by Ata Hameed | Report as abusive
 

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