The U.S. Treasury Department’s announcement that it is buying $5-billion in senior preferred equity from GMAC (NYSE:GKM) (NYSE:GMA) and lending up to $1-billion to fund General Motors Corp.’s (NYSE:GM) purchase of equity in support of GMAC’s reorganization as a bank holding company hints at a comprehensive solution for the troubled automaker.
While an eventual Chapter 11 bankruptcy reorganization cannot be dismissed if various stakeholders fail to meet required concessions, federal aid to GMAC suggests the government is probably now so financially entangled in GM that a Chapter 7 liquidation bankruptcy seems highly unlikely, according to J.P. Morgan analyst Himanshu Patel.
He considers the future of Chrysler, the other recipient of auto bailout money, less clear. The analyst would not be surprised to see additional government funds to GM to support a solution for U.S. car parts maker Delphi Corp.
“GM is now on a path to become the first global carmaker to have no influence/control over a captive auto finco,” Mr. Patel told clients, adding that this may prove a disadvantage to GM sales. If not, it could prompt other original equipment manufacturers to follow.
The analyst also suggested that with the help of low-cost federal loans and independence from GM, GMAC may gain market share from other captive fincos over the long term.
GMAC LLC may eventually convert to a public corporation as this would aid in monetization of GMAC membership interests being pushed out to non-controlling Cerberus fund investors as well as easing the US Treasury’s sale of GM’s 49% common equity in GMAC beyond the new 10% maximum allowed level.