Bailed-Out GMAC Repays GM $1.5 Billion IOU

After winning its own government bailout, GMAC Financial Services repaid a $1.5 billion IOU to GM, for one month's worth of cars and trucks.

On Dec. 15, GM and GMAC disclosed in identical filings with the Securities and Exchange Commission that GM would let GMAC defer payment for cars destined for GM dealers, for the month of December. On Dec. 31, the companies said GMAC had repaid the money.

On Dec. 29, the U.S. Treasury Department announced it was buying $5 billion in GMAC preferred shares out of the Troubled Asset Relief Program, and lending GM an additional $1 billion, to be invested in GMAC. That freed up some cash for GMAC.

On a parallel track, GMAC on Dec. 24 won approval from the Federal Reserve to convert itself to a bank holding company. That gives GMAC greater access to cheaper funds, in the form of deposits.

The way the auto retail business typically works is that GMAC in effect buys cars and trucks from GM, as soon as they leave the factory. Most dealers in turn buy their inventory from GMAC, not directly from GM. Dealers borrow the money from GMAC to finance their inventory. The dealers then pay GMAC back, as soon as the units are retailed.

For the month of December only, GM agreed to let GMAC pay for the inventory after the units were retailed, instead of as soon as they left the factory. So for one month, the dealers in effect bought their inventory straight from GM, instead of from the middleman, GMAC. That gave GMAC one month's worth of access to about $1.5 billion in cash that otherwise it would have handed over to GM.

Both companies flirted with bankruptcy before government funds came through. The U.S. Treasury threw GM and Chrysler a lifeline in the form of loans worth a total of $17.4 billion on Dec. 19. Treasury acted at the direction of President Bush, after the U.S. Senate balked at bailing out the automakers.