Does Washington's GMAC bailout hurt Ford?

Filed under: Car Buying, Government/Legal, Earnings/Financials

The Wall Street Journal puts forth the case that the government's $5 billion lifeline to GMAC has given GMAC a competitive advantage compared to its rivals. After the taxpayer cash was received, GMAC dropped the required credit score to get a loan and began offering 0% financing on several models, and rates from about 1% to 6% on a host of others. While doing so, it admitted that "without this [loan] . . . we would not be able to do this today."

The Journal cries foul, saying that because GMAC is essentially doing this with -- or at least, because of -- government money, "the feds have now put the muscle of the state behind one company's products." The Journal also considers that the government might do what it can to make sure the horses it bet on win the race, saying "the Washington temptation will be to take other steps to help the two companies gain market share at the expense of their private competitors."

As to the issue of granting the loan to GMAC at all, the government didn't have much choice unless it wanted its previous investment in GM to potentially get flushed by a GMAC bankruptcy. As to 0% fiancing, it's being offered on SUVs and Saabs, none of which are making the cash register overheat. A quick comparison between financing in Southern California through GMAC or Ford Credit found similar rates on other cars: the 2009 Malibu gets 4.9% APR, the same as the 2009 Ford Taurus SEL AWD.

Will the government try to otherwise help GM and Chrysler (beyond pushing more money their way)? The airlines got $15 billion after 9/11, yet would anyone accuse the government of otherwise aiding the industry? As to intervention in the free market... well, when was the last time the market was truly free? And Does GMAC's ability to offer the new incentives give it a competitive advantage over the other companies? It only lasted until January 5th, and some GM dealers did say they were moving metal -- but if the benefit really was that lopsided, we're sure those competitors will let us know about it soon enough.

[Source: Wall Street Journal]

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Does Washington's GMAC bailout hurt Ford? originally appeared on Autoblog on Sun, 04 Jan 2009 19:32:00 EST. Please see our terms for use of feeds.

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