I was wondering what the hell Ally Bank was when I saw those commercials and now I know. In an effort to get rid of the tarnish image of GMAC, the company changed its bank subsidiary’s name! Furthermore, the Treasury is going to send another $7.5 billion to GMAC in order to safe it. Great…
The government will also allow GMAC to issue FDIC backed debt of up to $7.4 billion. This is a surprising move because the government usually only allows companies with credit ratings of investment grade to do so, as opposed to the junk status of GMAC’s debt.
As I predicted when the bank stress test was announced, GMAC will have a very hard time to come up with the capital needed to keep afloat. Since GMAC now loans money to dealers at both General Motors (GM) and Chrysler, it would be impossible to just let it die without forfeiting every effort to save the U.S. auto industry. Oh well, more of my money going to waste.
What’s interesting is that now that GMAC is getting government help, it will be able to offer more attractive financing terms to potential customers than a company like Ford who didn’t get any help. This is just another way to throw good money towards the bad. What a shame. Instead of rewarding the good, we tell the good that it doesn’t matter what you do because we will save those who suck.
Go America!
Note: I have looked deeper into the bank and I wrote an Ally Bank Review. Check it out!