GMAC has put up $2.9 billion in fixed rate notes for sale. The notes act like a loan backed by the FDIC and allow GMAC to raise money despite its financial troubles. According to the Wall Street Journal, GMAC lost $3.9 billion last quarter and needs the additional capital to continue offering car loans to customers.
This means that consumers shopping for a new GM or Chrysler car will still have the option of a car loan through GMAC. Financing through GMAC lets GM offer incentives like 0% interest car loans. Coming out of bankruptcy, GM needs strong incentives like no interest car loans and money back guarantees to convince buyers to consider a GM vehicle.
"Today’s news is consistent with our view that the government will continue as a financial backstop for GMAC," Thomas Fergusen, an analyst at KDP Investment Advisors, said. "GMAC’s fundamentals notwithstanding, in Washington the company is viewed as an integral part of the U.S. auto industry’s restructuring."
The notes are part of the FDIC’s Temporary Liquidity Guarantee Program, in which the FDIC agreed to back notes offered by GM in order to prevent a bankruptcy. The notes will mature in three years and buyers will earn 1.75% interest. The U.S. Treasury has already invested $12.5 billion into GMAC in order to keep the company afloat in order to prevent a further collapse of the U.S. auto industry.
