Although I don’t necessarily agree with The Wall Street Journal’s editorial this past Friday (January 2, 2009, pg. A14) – Treasury to Ford: Drop Dead — I must concur that the federal GMAC Financial Servicesgovernment’s handling of the $17.4 billion loan package for the auto industry is a curious one.

Ford isn’t receiving a penny of the funds, which is okay with them as they only wanted a line of credit to keep running. However, the US Treasury nixed that idea, choosing to send all of the funds to GM and Chrysler, with GM getting the lion’s share at $13.4 billion.

In fact, the Treasury seems to have done GM a huge favor by purchasing $5 billion in preferred stock in its financing arm, GMAC, while lending GM $1 billion to help the automaker purchase equity in support of converting GMAC to a bank holding company. That moved quickly allowed GMAC to lower its lending requirements, particularly for new GM passenger vehicles. Immediately, GMAC made available 0% financing on select GM models while dropping their credit score threshold from 700 points to 621.

Before the federal government stepped in to buy a share of GMAC, GM owned 49% of the financing company with Cerberus Capital Management LP (owner of Chrysler LLC) owning the remaining 51%. With the federal government having a stake in GMAC, it now appears that the US Treasury is favoring GM above all other automakers. In fact, Chrysler has yet to receive a cent of the loan money as the Treasury says that they are working with the automaker to disburse funds (Update: The Treasury released these funds to Chrysler late Friday, January 2nd).

In the meantime, GM now has an edge on Ford and Chrysler (as well as Toyota, Honda, Nissan, et al, for that matter) as the automaker can offer cheap financing on several of its models. Granted, the Chevrolet TrailBlazer, Saab 9-7X and GMC Envoy aren’t exactly sport/utility vehicles with a broad appeal, but they have a level of financing that you won’t find with your Ford Explorer, Nissan Pathfinder or Toyota Highlander. The Saab 9-3 and 9-5 sedans are also included in this limited time offer which happens to expire today.

Over the past few months I’ve shared my opinion that a bail out for the automakers is a bad idea. I believe that the US Treasury will have to shovel tens of billions of dollars over and above the $17.4 billion loan deal for GM and Chrysler. And, thanks to putting GM at an unfair advantage, will likely force Ford to come back to Washington, DC with their hands out. Big Government owning Big Business equals socialism in my opinion.

One scenario that could result from all of this is a trade battle with European and Asian countries who will seek to subsidize their own cars in a quest to remain competitive. Initially, the American car buyer could benefit from improved financing but the addition to our national debt as well as the threat of a trade debacle will loom large.

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