Big automakers seek to tap Fed lending program
Hard up for cash, the lending arms of all three major U.S. automakers have asked for access to the Federal Reserve’s new short-term lending program.
GMAC Financial Services, 49% owned by General Motors Corp., has applied for the program, called the Commercial Paper Funding Facility, spokeswoman Gina Proia said. “We were approved to participate” on Monday, she said.
Ford Credit, a subsidiary of Ford Motor Co., also applied for the program, according to spokeswoman Brenda Hines.
And Chrysler Financial, the lending arm of Chrysler, has registered for access to the backstop, according to a person familiar with its operations.
Under the program, the Federal Reserve Bank of New York buys 90-day short-term notes, giving the debt issuer access to cash in a tight market. Neither Ford nor Chrysler would confirm that it had been granted access.
The news that all three automakers had applied for the program is the first concrete step taken by the companies in Washington to shore up their precarious cash positions. But all three said they were exploring other options with the Federal Reserve and the Treasury Department.
“Obviously the automakers are going through a particularly difficult time,” White House spokeswoman Dana Perino said Tuesday.
“The automakers have been in contact with us. We’ve been talking to them at various levels and at different departments, including Energy, Treasury and Commerce. And we’re trying to work with the tools that Congress has provided us.”
GMAC will issue the debt through its New Center Asset Trust facility, which can borrow as much as $10 billion.
In recent months, all three automakers have been forced to curtail lending to consumers and dealers as their access to cash has dried up in the credit crisis. GM said Tuesday that it would cease lending in seven European countries, including Finland.
As a result, they have had to draw down existing credit lines and tap their cash stockpiles. Both GM and Ford were burning about $1 billion a month as of the second quarter. As a privately held company, Chrysler does not release financial statements, but it is estimated that its cash burn is at least $300 million a month.
Of the three lending units, GMAC is perhaps best poised to access the various assistance programs introduced by the government in recent weeks.
Unlike Ford Credit and Chrysler Financial, GMAC is a chartered bank. That gives it, in theory, access to the Federal Reserve’s discount lending window and puts it further up in the line for programs such as the Troubled Asset Relief Program, the $700-billion plan passed by Congress to buy bad loans from lending institutions. Carmakers have suggested that removing impaired loans from their books would be an important help to their liquidity problems.
At the same time, GMAC, which is 51% owned by Cerberus Capital Management, the private equity company that also owns Chrysler, is in perhaps the most precarious position. Unlike Ford and Chrysler, GM’s lending arm invested heavily in mortgages, particularly subprime mortgages. Those loans cost the lender $1.9 billion in the second quarter alone.
GM is exploring a merger with Chrysler in hope that it would save the combined company as much as $10 billion through cost cutting. But that has been held up over financing issues, and speculation has grown that the automakers are looking to Washington to help pay for the deal.
“The Treasury Department is going to have to take a good, hard look at whether these companies would be eligible for that type of help,” Perino said, referring to possible assistance in cementing such a deal.
“No doubt that the automakers are big, important companies. . . . But they also are dealing with some decisions that they’ve made in the past. And we are in a global environment and they’re competing globally.”
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