$5 Billion to GMAC

Its no secret that I have some concerns (if not outright opposition) to the massive, ill planned auto industry bailout. However, it now seems evident that the US government is going to take all necessary steps to keep these lumbering beasts alive (at least in the short run). Therefore, because we, the taxpayer, can not stop the inflow of capital to these companies despite their inability to provide Congress with any real plan regarding how they will re-shape their business models to become more competitive and capital efficient, we must look to where the invested capital will be best employed in a manner that benefits not only the auto-makers, but the economy as a whole (where the evaporated capital/total capital invested ratio will be lowest).

I would argue a $5 billion purchase of senior preferred equity in GMAC is a lesser of two evils. At least we know that a portion of this capital will be used by GMAC to provide financing to a "broader spectrum of U.S. customers." Furthermore, GMAC has said it will lower its credit criteria to include retail financing for customers with a credit bureau score of 621 or above (this is compared to a 700 criteria pre-capital infusion) and offer 0% financing for up to 5 years on some GM cars and trucks. This improvement in credit availability and terms may be a first step in creating some increased demand (albeit it very small given the macro pressure on the US consumer) in GM automobiles, and it is certainly more efficient than giving the money directly to GM, where despite two presentations to Congress, we still have no idea where it would end up.