According to General Motors in 2008 Given the current financial market turmoil

According to general motors in 2008 given the current

This preview shows page 8 - 11 out of 34 pages.

GMAC also had extensive commercial agreements related to vehicle and dealer financing. According to General Motors (in 2008): “Given the current financial market turmoil and depressed economy, GMAC has been facing significant income and liquidity challenges that adversely affected both the value of GM’s investments in GMAC and the extent to which GMAC is able to provide financing for GM vehicles and GM dealers. As a result of these pressures, GMAC has reduced its financing of vehicle sales and leases, including completely exiting the retail vehicle financing business in certain international markets. These developments in turn have made it harder for consumers to find financing and have resulted in increased costs to GM and lost sales”. General Motors Co | 4/22/2012 GM was selling its part in GMAC and the latter was pursuing approval to become a bank holding company (BHC)7 by converting its industrial loan company subsidiary into a full 6 All GM information was taken from: General Motors, Restructuring plan for long-term viability- Document submitted to senate banking committee and house of representative financial services committee. 7 BHCs are allowed to hold many subsidiary businesses involved in a wide array of financial services. But BHCs are generally not allowed to own any non-banking activities nor even have voting shares in non- bank related companies. Becoming a bank holding company makes it easier for the firm to raise capital than as a traditional bank. The holding company can assume debt of shareholders on a tax free basis, borrow money, acquire other banks and non-bank entities more easily, and issue stock with greater regulatory ease. It also has a greater legal authority to conduct share repurchases of its own stock. The downside includes responding to additional regulatory authorities, especially if there are more than 300 shareholders, at which point the bank holding company is forced to register with the Securities and
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service, FDIC-insured bank. GM issued a statement at that time which said, “GM expects that a lower cost of funding at GMAC would enable it to support an expanded retail and lease business at lower cost to consumers and would positively impact pricing to GM for GM-sponsored marketing incentives (e.g., 0% financing offers). GM also believes that GMAC, as a BHC, would be in a far stronger position to provide financing for GM dealers. All these improvements could be expected to result in increases in GM vehicle sales”8. Although in 2008 the GMAC sale represented a “safe” way to quickly un-lever the firm, we will see later in this report what were the strategic implications of selling GMAC and how it affected GM compared to its competitor Ford. The results of the restructuring Despite GMs efforts to implement its restructuring plan and, the government bailed out, in the second quarter of 2009, GM filed for Chapter 11 reorganization. In the third quarter of 2009, a new entity, NGMCO purchased the ongoing operations and trademarks from old GM. The purchasing company, in turn, changed its name from
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