Analysts say a government-run GMAC could give GM, Chrysler a big leg up on competitors

How could a government-run GMAC reshape car sales?

DETROIT — With the federal government almost certain to take control of GMAC Financial Services, analysts suggest it could become a loan machine that gives General Motors and Chrysler a huge advantage over their competitors.

The company was one of 10 financial firms ordered by the government to raise more capital after taking a stress test. In GMAC’s case, it needs $11.5 billion, and the most likely source is the government itself.

A government-controlled GMAC would have the power to offer low-cost loans to buyers of GM and Chrysler cars and trucks as a way of steering business to the troubled automakers.

“GMAC could become the Freddie Mac and Fannie Mae of auto finance. It would probably help sales of GM and Chrysler cars, but it also increases the risk of taxpayer loss,” said Bert Ely, a banking consultant in Alexandria, Va.

“A very serious question is being raised about how the government could use a GMAC to advance the fortunes of GM at the expense of other automakers like Ford and Toyota,” he said.

The Obama administration already owns 5 million shares of GMAC, which it got in exchange for a $5 billion bailout loan. And Treasury Secretary Timothy Geithner said Friday his department is poised to offer GMAC more help.

“We’re going to provide substantial support to GMAC,” Geithner said. He said it was “likely” that GMAC will need more money from the government, “and we’ll be prepared to provide that.”

Chrysler LLC is already in bankruptcy, and General Motors Corp. is facing a June 1 deadline to finish a restructuring plan and avoid winding up in bankruptcy as well. U.S. auto sales are already at a 27-year low.

The government could lean on GMAC to help stimulate sales with the cash to offer zero-percent financing, or lower credit requirements.

“Financing is critical to this process, and that requires that GMAC have the ability to provide loans that Americans need to buy cars,” Geithner said.

Turning GMAC into a government-funded finance arm for GM and Chrysler would give them a competitive advantage over Ford Motor Co. and perhaps other automakers, said Kirk Ludtke, senior vice president of CRT Capital Group LLC in Stamford, Conn.

“Credit is the lifeblood of the car business, so the more easily accessible credit is, particularly in this environment, the better off you’re going to do in the marketplace,” he said.

The Treasury has said it would promote the availability of credit to finance car purchase, but neither it or GMAC would disclose specific details on how a promotion would be done, or how terms would compare with other finance companies.

GMAC lost $675 million in the first quarter because of the bad economy and losses related to older auto and mortgage loans. It says it’s increased lending since it received the government loan, but lending is still well below levels of a year ago.

The company might be able to justify future losses by saying they are carrying out a government mission, but that could be politically tricky, Ely said. The government has never pushed Americans to buy cars they way it has encouraged homeownership.

“There’s probably little controversy over the role Freddie and Fannie play, but this quickly becomes a political issue,” he said. “It’s very different. Whatever arguments can be marshaled with how they’re being used now, simply do not apply under a GMAC situation.”

GMAC, which until recently was GM’s financing arm, says it has not come up with a plan to raise the money it needs.

“The things that we’re doing to strengthen the company we expect will ultimately make us more competitive and help the customers we serve,” said GMAC spokeswoman Gina Proia.

Paul Taylor, chief economist with the National Automobile Dealers Association, said car buyers benefited when GMAC converted itself into a bank holding company in January and received government aid.

GMAC had stopped lending to anyone with credit scores below 700, but when government funding arrived, it lowered the bar to 621, which is below average, and even did a small amount of lending to people with lower scores, Taylor said.

“The result of government assistance so far has been to increase credit availability to consumers,” Taylor said. “And that has been helpful in a credit-constrained auto retailing environment.”

While consumers might benefit from increased access to lower-cost credit, Ford would be hurt the most, Ludtke said.

“I think GM, Ford and Chrysler compete for a lot of the same customers,” he said. “To the extent that GM and Chrysler are able to offer a more accessible, less-expensive financing, it definitely puts Ford at a disadvantage.”

Ford Motor Credit Co. spokeswoman Margaret Mellott wouldn’t comment on how a government-powered GMAC might affect Ford.

“At Ford Motor Credit, we continue to fund our business,” she said. “We will certainly welcome the return of more normal credit market activity and appreciate all the global governmental efforts to help make this happen.”

Mark Simmons, a spokesman for Toyota Financial Services, said his company continues to view GMAC as a competitor, just as before.

It’s also possible that GMAC, as a bank holding company, could make loans to buyers of other auto brands beside GM and Chrysler, going outside its normal role as an auto financing unit that is “captive” to its automakers.

“The requirements of many of these programs and the change in the overall ownership structure of GMAC would cause it to act less like a captive and more like a financial institution looking for sound growth,” Taylor said.

AP Auto Writers Tom Krisher in Detroit, Auto Writer Dan Strumpf in New York and Economics Writer Martin Crustinger in Washington contributed to this report.