toyota financial
The auto and home lender that was bailed out in December, will receive more than $7 billion in government funds to provide financing for customers of Chrysler LLC and General Motors Corp., according to two people familiar with the matter.
A second payment may follow, said one of the people, who declined to be identified because the talks aren’t public. GMAC agreed on April 30 to fund Chrysler customers and dealers after the automaker entered bankruptcy. Gina Proia, a spokeswoman at Detroit-based GMAC, and Treasury spokeswoman Jenni Engebretsen declined to comment yesterday.
GMAC, which received $6 billion from the government five months ago, has been deemed critical to the survival of GM and Chrysler, two of the country’s three biggest car manufacturers. With GM facing possible bankruptcy following Chrysler’s filing, the companies want a lender offering lower rates and flexible terms for borrowers to compete with Ford Motor Co. and Toyota Motor Corp., said Jeremy Anwyl, chief executive officer of research firm Edmunds.com in Santa Monica, California.
“They need that relationship to be competitive against Ford and Toyota and other players out there that have strong finance arms that can actually stretch and help them sell more cars,” Anwyl said yesterday in a phone interview.
The contract with the government includes a four-year agreement for GMAC to be the preferred provider of incentivized retail financing for Chrysler, and originate loans to customers that had relied on Chrysler Financial.
Government Rescue
Unable to sell debt because of its junk rating, GMAC was permitted to convert into a bank holding company in December to tap the Treasury’s rescue fund and attract more retail deposits. Government stress tests this month determined GMAC needs to raise $11.5 billion to withstand a deepening recession.
The company has lost money in six of the past seven quarters and faced near collapse last year from tumbling auto sales and surging home foreclosures.
GMAC’s bonds have jumped 71 percent since the Chrysler deal was signed on optimism the government won’t let the company fail. The 8 percent bonds due in 2031 rose 0.9 cent to 71 cents on the dollar yesterday, to yield 11.7 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Gimme Credit LLC analyst Kathleen Shanley recommended investors sell their stakes after the rally because of the deteriorating auto market. In the first quarter, GMAC’s loan originations for new vehicles tumbled 74 percent from a year earlier to $3.4 billion as unemployment reached the highest in a quarter century.
Not ‘Out of the Woods’
“GMAC’s core auto-finance business is being buffeted by the sharp downturn in auto sales and the worldwide credit crunch,” Shanley, based in Chicago, wrote in a May 14 report. Even with government support, “bondholders may not be out of the woods yet, especially if operating results continue to deteriorate,” she wrote.
GMAC’s status as a bank holding company forced majority- owner Cerberus Capital Management LP and minority-owner GM to relinquish most of their stakes. GMAC is also altering its board to consist of Chief Executive Officer Al de Molina, one representative from Cerberus and two from a trust being set up by Detroit-based GM. Those four will appoint three independent members and the permanent board will be announced by tomorrow, according to a March 25 regulatory filing.
A second payment may follow, said one of the people, who declined to be identified because the talks aren’t public. GMAC agreed on April 30 to fund Chrysler customers and dealers after the automaker entered bankruptcy. Gina Proia, a spokeswoman at Detroit-based GMAC, and Treasury spokeswoman Jenni Engebretsen declined to comment yesterday.
GMAC, which received $6 billion from the government five months ago, has been deemed critical to the survival of GM and Chrysler, two of the country’s three biggest car manufacturers. With GM facing possible bankruptcy following Chrysler’s filing, the companies want a lender offering lower rates and flexible terms for borrowers to compete with Ford Motor Co. and Toyota Motor Corp., said Jeremy Anwyl, chief executive officer of research firm Edmunds.com in Santa Monica, California.
“They need that relationship to be competitive against Ford and Toyota and other players out there that have strong finance arms that can actually stretch and help them sell more cars,” Anwyl said yesterday in a phone interview.
The contract with the government includes a four-year agreement for GMAC to be the preferred provider of incentivized retail financing for Chrysler, and originate loans to customers that had relied on Chrysler Financial.
Government Rescue
Unable to sell debt because of its junk rating, GMAC was permitted to convert into a bank holding company in December to tap the Treasury’s rescue fund and attract more retail deposits. Government stress tests this month determined GMAC needs to raise $11.5 billion to withstand a deepening recession.
The company has lost money in six of the past seven quarters and faced near collapse last year from tumbling auto sales and surging home foreclosures.
GMAC’s bonds have jumped 71 percent since the Chrysler deal was signed on optimism the government won’t let the company fail. The 8 percent bonds due in 2031 rose 0.9 cent to 71 cents on the dollar yesterday, to yield 11.7 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Gimme Credit LLC analyst Kathleen Shanley recommended investors sell their stakes after the rally because of the deteriorating auto market. In the first quarter, GMAC’s loan originations for new vehicles tumbled 74 percent from a year earlier to $3.4 billion as unemployment reached the highest in a quarter century.
Not ‘Out of the Woods’
“GMAC’s core auto-finance business is being buffeted by the sharp downturn in auto sales and the worldwide credit crunch,” Shanley, based in Chicago, wrote in a May 14 report. Even with government support, “bondholders may not be out of the woods yet, especially if operating results continue to deteriorate,” she wrote.
GMAC’s status as a bank holding company forced majority- owner Cerberus Capital Management LP and minority-owner GM to relinquish most of their stakes. GMAC is also altering its board to consist of Chief Executive Officer Al de Molina, one representative from Cerberus and two from a trust being set up by Detroit-based GM. Those four will appoint three independent members and the permanent board will be announced by tomorrow, according to a March 25 regulatory filing.
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