Profits in G.M.A.C. Bailout to Benefit Financiers, Not U.S.

The following is an excerpt from an article in 

The New York Times
Wednesday, August 22, 2012

Profits in G.M.A.C. Bailout to Benefit Financiers, Not U.S.

By STEVEN M. DAVIDOFF

Among the companies that were bailed out by the federal government during the financial crisis, perhaps the most intractable is proving to be the company formerly known as the General Motors Acceptance Corporation. It's a case study in how bailouts can linger and profits, when they do come, flow not to the government but to the Warren E. Buffetts of the world.

G.M.A.C. was the financial arm of General Motors. In the years leading up to the financial crisis, it was also G.M.'s most profitable unit, which tells you something about the auto industry at the time. The company earned more profit from lending money to customers than in selling cars.

In 2005, desperate to raise cash, General Motors sold a 51 percent stake in G.M.A.C. to the private equity firm Cerberus Capital Management. Cerberus beat out a rival, Kohlberg Kravis Roberts, for the privilege, spurring BusinessWeek to write that Henry R. Kravis's loss "has to sting."

During the financial crisis, however, the sting was felt on the other side, as G.M.A.C. staved off collapse thanks only to a government infusion of $17.2 billion. The company was renamed Ally Financial - you have probably seen its catchy commercials on television. The Treasury Department owns 73.8 percent of Ally, with Cerberus retaining an 8.7 percent stake.

Almost since that time, the Treasury Department has wanted to rid itself of its Ally stake. Ally filed for an initial public offering in March 2011, but it has so far languished in the face of a weak market and concerns over Ally itself. The Treasury Department has been paid back about $5.7 billion and still controls the company through its stock ownership and appointment of a majority of Ally's directors.

Despite lingering concerns about Ally, the automobile sales market is recovering and Ally's auto finance operations turned a profit last year. But Ally is still suffering from legacy debts, primarily concentrated in its ResCap unit. While you might think that with a name like G.M.A.C., the company financed only automobiles, but the company was also one of the largest subprime housing lenders through its ResCap subsidiary.

For more, visit www.nytimes.com.

Enthusiastic About Car Sharing? Your Insurer Isn’t

Excerpt from an article in

The New York Times

Saturday, March 17, 2012

Enthusiastic About Car Sharing? Your Insurer Isn’t

By RON LIEBER

At first glance, the idea of person-to-person car sharing appears to be the perfect solution to any number of problems.  

People with idle cars (and most cars are idle most of the time) can make some money by renting them out to others who need a car sometimes but not often enough to own one. At some point, the world would ultimately need fewer cars and places to park them. It feels greener, and sharing is polite and all that.  

But then the grown-ups show up, in the form of insurance companies. I called them this week in the wake of an announcement by RelayRides, a company with venture capital backing from both Google Ventures and General Motors, that it was taking its car-sharing service national.

And the grown-ups are not pleased. They want you to know that RelayRides insurance won’t be adequate in the event of a catastrophic accident and that your own insurance company may take away your insurance if it even hears that you are lending your car to someone in exchange for a few dollars an hour.

So anyone considering this sort of thing has to ask: Is the insurance industry overstating the risk of playing along with this cutting-edge idea, is RelayRides underestimating your exposure, or both?

RelayRides is one of several car-sharing services to arrive on the scene in recent years. Getaround is another start-up, as are JustShareIt and Wheelz, a company that the car-sharing giant Zipcar invested in last month.

They’re all part of a larger “collaborative consumption” movement that has captured the imagination of a growing number of civic-minded, Web-addicted people who want to both save some money and use a bit less of the world’s resources. This includes home-sharing services like Airbnb, office-sharing services like Loosecubes and general sharing sites like NeighborGoods and Rentabilities.