D.F.

Krause

Read D.F.'s bio and previous columns

May 22, 2009

They’re Ally Bank. Just Forget They Were Ever GMAC. Please. Please!

I’d like to introduce myself to you as Larry Montenegro. Why? Because you might be one of those people who think I am an idiot. If I introduce myself to you as D.F. Krause, you’ll think, “Oh, that idiot.”

But if I’m Larry Montenegro, you’ll think, “Whoa, check out the suave dude.”

Or something like that. I think it will work for me, because GMAC thinks it will work for them. You know it’s one of the most poorly capitalized, unsuccessful “banks” anywhere, so poof. It’s no longer GMAC. It’s now Ally Bank. And I’m sure that makes you feel much better about everything.

The whole idea of a bank is to have capital on hand for people who want to use it – and of course, to make the capital available in such a way that the bank can ultimately profit from the transaction. A bank without enough capital is like Col. Sanders running out of chicken.

“Sorry, we’re out of chicken, but you can have all the biscuits you want!”

Why are the people leaving?

Now GMAC hasn’t even been a bank, at least not officially, all that long. Before a few months ago, it was simply the finance arm of General Motors. You know those many billions of dollars GM loses every year? Much of the procedure for losing it involved loaning people money, through GMAC, to finance car purchases – only to see the borrowers default on the loans.

That’s a finance company. It’s not a bank. There are reasons finance companies would prefer not to be banks – mostly owing the myriad of regulations you have to follow when you’re a bank.

But that all changed in late 2008, when GMAC started running out of cash, and Congress passed the Troubled Asset Relief Program, which pumped capital into failing banks. Not finance companies, mind you. Banks.

So what did GMAC say then?

“Oh! We’re a bank!”

Hey, like parent company, like finance arm. There’s federal money in it? Hell yeah, we’re a bank. We’ll even leave work at 3 p.m. and go golfing if it will help. You bet we’re a bank!

It worked. The feds will apparently believe anyone is a bank. And GMAC got TARP money, which we all know is guaranteed to keep you out of bankruptcy court. Just ask General Motors itself, or Chrysler.

But there was one small problem. GMAC’s customers seem to have noticed that GMAC is, well, GMAC – regardless of how the federal government categorizes it. And they have about as much confidence in GMAC as you would expect them to have, so when the feds conducted the recent “stress tests” on banks to see who most desperately needs capital, guess who came out on top! (Or bottom, if you prefer.)

How would you solve this? GMAC is owned in part by General Motors, and in part by Cerberus Capital Management, the people who own Chrysler. Now there’s an ownership team! Couldn’t they get Jimmy Carter to be part of this? (Then again, they already have Dan Quayle.)

So if you have insufficient capital, owners who personify failure and a market based that’s tied up in America’s most unstable industry, what, oh what, do you do?

Change your name! That way, you’ll get customers, because people won’t be able to figure out who you really are.

Do they really think this will work?

“We fully expect more customers will use us,” says their chief marketing officer. So yes, they do think it will work. Why should you bank with Ally Bank? Because you don’t know who it really is.

Of all the business ideas I’ve heard in my day, that’s one of them.

And me? I’m Larry. Nice to meet you. That idiot, D.F.? I’m Larry . . .

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