Auto-financing giant GMAC relinquished its exclusive right to provide financing to people buying General Motors vehicles in exchange for up to $6 billion in federal aid.
The deal abruptly ends a 10-year contract between GM and GMAC, according to the lender's filing with the Securities and Exchange Commission yesterday. In the past, whenever GM offered vehicle financing and leasing specials, such as below-market interest rates, it did so through GMAC. The lender paid an annual fee to GM for the exclusivity and was required to meet sales targets.
Now, during the next two years, the automaker can offer incentive programs through other lenders under certain requirements, the filing said. After that period, the terms will gradually loosen until 2013, when GM will have the right to offer programs through any lender - including GMAC - without restriction or limitation.
The agreement also releases GMAC from meeting specific sales targets and the obligation to provide leases.
"I don't see anything negative in this new arrangement, as long as GMAC is still supportive of GM's effort to sell cars," said Jack Fitzgerald, owner of Fitzgerald Auto Malls, based in Bethesda.
The changes, effective Monday, follow the Federal Reserve's approval of GMAC to become a bank holding company, making the lender eligible for a slice of the Treasury Department's $700 billion financial rescue package.
The government received 5 million preferred shares in GMAC that pay an 8 percent dividend - a larger payout to taxpayers than the 5 percent dividend on its investments in banks - in return for a $5 billion capital injection in the company. Treasury said it would also lend up to $1 billion to GM so that the automaker would invest in the firm and support its reorganization.
"GM has had all the benefits that Ford Motor Credit provides to the Ford Motor Co.," Fitzgerald said. "If GMAC does all that, fine. If it doesn't, GM will have to create another GMAC of its own. It's just the way it is."