Ally, GMAC and MIC

— August 24, 2010 —

Everyone is watching the relationship with GM and Ally since GM announced their alliance with AmeriCredit.  There seems to be a missing element here, an elephant in the living room as they say, that no one is talking about.

What about MIC, the insurance division that houses GMPP and the smaller independent service contract programs owned by Ally/GMAC?

As events unfold, this topic is yet to come up in discussions.  After reading an article in Automotive News concerning GM and Ally, I contacted the author, Donna Harris, and asked her take on the subject.  Our email exchange follows:

From: Tom Luzader <tomluzader@dealershipincomedevelopment.com>
To: <dharris@crain.com>
Subject: Ally/GMAC and GMPP/MIC
Date: Wed, 11 Aug 2010 16:39:28 -0700

Why is it that no-one is talking about GMPP and MIC in all of these discussions about GM and Ally? If Ally is going to do an IPO how are they going to lure investor with a B rated insurance company as part of the package?

–
Tom Luzader
Dealership Income Development
office 602-395-5555
cell 602-821-6888

donnaharris@juno.com to me

You raise a good point, but as Ally’s debt ratings head toward investment grade wouldn’t it take the insurance company with it? Ford Credit’s insurance company also dipped into the B or B+ range. A few years ago, these finance companies wouldn’t finance a service contract that was backed by an insurer with anything less than an A- rating. I asked Ford Credit about that–so are you financing your own service plans these days–and got an irritated response that they know their own program is solid.
So are you an industry consultant?
Thanks for your interest and feedback.
Donna Harris

tomluzader to donnaharris

To answer the question in the last sentence, yes. I assist dealers in setting up participation plans for their service contract programs, both domestically and offshore.

Your analogy to the Ford situation is only partially accurate. ESP at the time was a wholly owned subsidiary of Ford. The current situation with Ally/GMAC is much different. GM is a minority owner of Ally/GMAC. MIC is carrying a large amount of risk and is on the watch list at most rating agencies. What interests me is that Ally now know that they will not be purchased by GM and is actually competing with a favored lender for GM dealer business. This just seem to me to potentially place the MIC relationship in at times an adversarial relationship with GM dealers. This could manifest itself into a higher percentage of audits, etc. if Ally needs to increase premium to offset losses.

No-one knows how this will play out, but the GMPP book of business has to be important to GM, or maybe not. Would they, GM, consider walking away from that risk and starting a new relationship with a new service contract provider? (FUD….fear uncertainty and doubt) Loyalty seems to be wavering for both dealers and the manufactures. It is an interesting time to be inside of this business.

I love this business.

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