Look, let’s not beat around the bush here. GM is in big trouble. They sell many products that people don’t want anymore (gas guzzlers), their growth engine is sputtering (GMAC) and they have enormous liabilities (retiree healthcare and pensions). Is there any way out of this problem? Heck if I know.
What I do know is that not only are SUV autos a problem but auto loans are going to become a liability very soon as well. And that spells trouble not only for financials but also for the big three automakers.
“There was not room for slippage,” said Ramsey, 49, a former Bank of America Corp. executive who joined Detroit-based GMAC in September and became chief risk officer two months later. He pulled it off as banks led by New York-based JPMorgan Chase & Co. and Citigroup Inc. provided GMAC and its Residential Capital LLC mortgage unit with the biggest restructuring package since the credit-market rout began a year ago.
Whether that’s enough to ride out the worst housing slump since the Great Depression remains in doubt. Moody’s Investors Service cut GMAC’s credit rating one level to six rankings below investment-grade last week as ResCap burns through cash after losing $5.3 billion in the past six quarters.
-Bloomberg News, 24 Jun 2008
Bankruptcy is a real possibility for both GMAC and GM. I haver no crystal ball, but I do know that they are facing challenges with the economic slowdown and the high cost of oil.
But let’s also remember that RMBS’s imploded because the underlying collateral was damaged. And some of this stuff was AAA? Well, the same is true with auto loan ABS paper. Take a look.
Subject [/] CMBS: GMAC 06-C1 *PUBLICS* Px Guidance
GMAC Commercial Mortgage Securities, Inc,Commercial Mortgage Pass-Through Certificates,Series 2006-C1 $1.561B NEW ISSUE CMBS
Lead-Mgrs: Deutsche Bank Securities / Morgan Stanley & Co. Inc.Co-Managers: GMACRating Agencies: Fitch / Standard & Poor’s
Ratings Class WAL Principal Sub PxClass (Fitch/S&P) Size (1) (yrs) Window Levels GuidA-1 AAA/AAA 37.0 2.99 02/06-09/10 30.000% S+9aA-1D AAA/AAA 15.0 2.99 02/06-09/10 30.000% (No Longer Available)A-2 AAA/AAA 166.0 4.72 09/10-02/11 30.000% S+22aA-3 AAA/AAA 98.0 7.19 02/11-06/15 30.000% S+32aA-1A AAA/AAA 296.1 7.68 02/06-12/15 30.000% (No Longer Available)A-4 AAA/AAA 576.1 9.66 06/15-11/15 30.000% S+28aA-M AAA/AAA 169.7 9.86 12/15-12/15 20.000% S+32aA-J AAA/AAA 114.6 9.86 12/15-12/15 13.250% S+39a
Above was a sampling of the AAA rated paper that GMAC issued in 2006. There is a lot more of this stuff floating around from 2007 and 2008. Where these bonds are going is anyone’s guess but given the turmoil GMAC has had, I suspect difficulty lies ahead. Moreover, GMAC also got into Home Equity lines of credit. Here’s are a few AAA tranches from 2007.
$1,185,871,000 (Approximate) GMACM HOME EQUITY LOAN TRUST 2007-HE1
____________________________________________________________________________________________________________________________________ Note WAL (Yrs.) Payment Window Expected Rating Legal FinalClass(1) Balance(2) Call/Mat(3) Call/Mat (Months)(3) Note Rate Note Type (S&P/Moody’s) Maturity____________________________________________________________________________________________________________________________________A-1 $677,500,000 1.00 / 1.00 1 – 23 / 1 – 23 Floater(4) Sequential AAA/Aaa August 2037A-2 $136,300,000 2.20 / 2.20 23 – 30 / 23 – 30 Fixed(5) Sequential AAA/Aaa August 2037A-3 $129,600,000 3.00 / 3.00 30 – 43 / 30 – 43 Fixed(5) Sequential AAA/Aaa August 2037A-4 $123,871,000 4.51 / 5.16 43 – 61 / 43 – 139 Fixed(5) Sequential AAA/Aaa August 2037A-5 $118,600,000 4.70 / 5.85 37 – 61 / 37 – 137 Fixed (5) NAS AAA/Aaa August 2037Total $1,185,871,000
–SEC filing, 22 Mar 2007
As the real economy deflates, auto loans and home equity loans will become another area to see collateral impaired and the result will be writedowns just like with subprime.
Related articles
GM drops to 53-year low after Goldman says ‘sell’, National Post, 26 Jun 2008
GMAC’s Other Headache, WSJ, 26 Jun 2008