GM Auto-Lender Still Owes Federal Government $5 Billion

Feds lost $10.5 billion on GM bailout

General Motors President Mark Reuss / AP
• December 10, 2013 1:00 pm


 General Motors’ (GM) troubled lending arm remains billions of dollars in debt to taxpayers. 

The Treasury Department sold its remaining GM stock on Monday, a move that is expected to cost taxpayers $10.5 billion.

"With the final sale of GM stock, this important chapter in our nation’s history is now closed," said Treasury Secretary Jacob J. Lew in a statement.

The matter, however, is not yet settled. GM auto-lender Ally Financial still owes taxpayers nearly $5 billion and the federal government owns 64 percent of the company, according to a Treasury Department official.

The bank, which was originally known as GMAC, received a $17 billion bailout in order to maintain lending operations to GM, according to risk analyst Chris Whalen.

"The whole point of this was to fix GM," he said. "The GM factor is settled … but Ally is certainly not finished."

GMAC served as GM’s in-house lending arm until the cash-strapped automaker spun it off in 2006, two years before the financial crisis devastated its mortgage holdings.

A department spokesman said the Treasury views GM and Ally "as separate companies and separate investments." However, the bank still handles thousands of GM loans at the dealership level while the automaker’s in-house lending arm focuses on subprime clients.

GM has taken steps to re-incorporate the bank’s auto lending practices into the fold. The automaker purchased Ally’s foreign lending operations for $4 billion in November 2012 in order to streamline lending costs. Whalen said the Treasury Department would have been better off selling all of Ally’s auto divisions to GM before entering the bank into bankruptcy.

"It doesn’t make sense to have a free-standing auto business," he said. "Treasury should have reunited the finance business to GM."

While other automakers such as Ford, Honda, and Toyota are able to generate profit on loan repayment, as well as car sales, GM loses out on lending revenue to Ally, according to Whalen. While the Ally bailout may have helped GM in the short-term, it has continued to hamper GM earnings.

GM has now moved to sever ties from the bank, which has routinely failed Treasury Department stress tests. It sold its nearly 10 percent ownership stake in Ally last week.

GM is eager to put the bailout behind it, as the company looks to overcome that "Government Motors" stigma that has threatened to stymie sales on its new line of pick-up trucks.

"The U.S. Treasury’s ownership exit closes just one chapter in GM’s ongoing turnaround story," GM said in a statement. "We will always be grateful for the second chance extended to us and we are doing our best to make the most of it."

Published under: General Motors