A Brave New GMAC

The Wall Street Journal has an interesting article today about the evolution of GMAC, traditionally the captive finance company for General Motors vehicles. It no longer caters only to GM's business, however. It has expanded beyond the walls of GM dealerships, and cash deposits resulting from its recently acquired status as a bank holding company has breathed new life into its balance sheet.

Here's a little detail from WSJ:

A key part of the aid GMAC got from the Obama administration was a green light to turn itself into a bank-holding company. That allowed it to expand its retail banking business, which now serves as a growing source of funds for lending, particularly as it looks to chase more business in the used-car market and lend on non-GM vehicles.

That's in addition to the $12.5 billion in bailout money, which it hasn't paid back. It's 35% owned by Uncle Sam.

Going retail is definitely a great way to secure cheap financing for making more loans -- especially given how expensive the still stumbling securitization market has become. The strategy of a finance company going retail isn't as novel as you might think. Capital One took that route when it purchased a couple retail banks in 2005-2006. It saw the same initial benefits. Of course, its epic losses related to mortgages have overshadowed the success it had with the strategy.

What's also interesting is GMAC's decision to free itself from GM vehicle loan exclusivity. The article explains GMAC's push to expand its auto loan business to other third-party dealers through the Ally brand name. In fact:

GMAC in April took over for Chrysler Financial as the preferred lender for Chrysler Group LLC, which now is controlled by Fiat SpA following its May bankruptcy filing.

So if you want an auto loan for a car from a bankrupt company, GMAC has that market cornered. Apparently it's also looking to reacquire business from the brands that GM spins off, like Saturn.

These moves all make strategic sense for GMAC's survival. Obviously, distancing itself from a sole association with GM is wise at this point, not only for publicity but also to gain greater market share as GM's plummets. I suspect, however, that its success in gaining cheap financing through retail deposits might be short lived. Its retail banks may have grown initially, but I can't see deposits growing by leaps and bounds indefinitely. Retail banking is terribly competitive, and the industry titans will likely keep most of their market share. Still, a retail presence can't hurt.