Democratic Congressional leaders agreed that General Motor’s late-Wednesday reacquisition of GMAC would let them pass emergency legislation that would aid the imperiled automaker.  It would also satisfy President George Bush’s last remaining objections.

"This bold stroke by GM ensures that Congress will be able to save the jobs of millions of workers whose livelihoods are on the line," the Senate majority leader said in a statement.

When the Speaker of the House said Congress and the administration "must take immediate action" to stave off a possible collapse of the American auto industry, few expected that the most creative move would come from Detroit.

The White House insisted that the $700 billion bailout pool must be reserved for financial institutions, and it seemed unlikely that lawmakers would be able to craft a workable compromise that would direct funds to Detroit.

But that was before GM’s Chairman visited his neighborhood Starbucks®.  Starbucks, or as it is now known, Starbucks® Bank & Bean, received a national banking charter over the weekend.  All 11,434 US stores now operate as FDIC-insured bank branches.

According to a Starbucks baristeller who did not want to be named because "my boss would get steamed", the Chairman entered the branch on Tuesday afternoon to open a new account and pick up a promotional toaster.  "All of a sudden, he looked around, started to smile, ran out of the store, er – branch, got into his limo and rode away."

GM insiders say that the Chairman realized that GM could adopt a strategy similar to that of Starbucks, which had converted to a national bank after its fourth quarter profit declined by 98 percent.  Neel Kashkari, assistant secretary of the Treasury, quickly approved the Starbucks conversion due to the bank-like purpose of the former coffee chain’s loyalty card program as well as the firm’s strategic importance as caffeinator-of-choice to the lender-of-last-resort.

One source familiar with the Chairman’s thinking said that:

"The Chairman realized that he had been foolish to attempt to strengthen and clean up GM’s balance sheet in 2006 in advance of an anticipated weak economy. 

"While such actions would normally be defensible and rational, GM should not put itself  ‘in the same position’ as borrowers who had purchased modest homes with mortgages they could afford, because that cut them off from the government’s bailout pot that would only be made available to over-leveraged delinquents.

"If the government is saying that we [GM] have to be leveraged and at risk to get help, then who are we to try and adopt a financially prudent business structure.  Let’s lever this baby [GM] up, and see how much government money we can get.  If it’s good for the country, then it MUST be good for GM."

But while the Starbucks’ conversion relied upon, as one staffer put it, "a creative and flexible" classification of loyalty cards, the justification for GM’s anticipated bank charter is straightforward. 

Although GM had sold 51% of its finance subsidiary, GMAC, to a consortium led by Cerberus Capital Management in 2006 for $7 billion, the automaker retained a 49% stake in the mammoth financial services company.  Now a private company, GMAC last publicly reported $21 billion in annual revenue and more than 31,000 employees.

October rumors had suggested that GM might trade its remaining 49% stake in GMAC to acquire Chrysler LLC from Cerberus. But yesterday GM jettisoned that plan and announced that it would reacquire Cerberus’ 51% stake in GMAC in exchange for a "nominal" cash payment and unspecified equity interest in GM.  Given the prominence and importance of the re-unified GMAC to both GM and the nation, Treasury officials say that they will "raise no objections" to GM’s application for a national bank charter.

Although GM’s access to bailout funding may be secured, the regulatory future of the auto giant remains murky.

A senior Democratic official, who did not want to be identified talking publicly about party strategy, suggested that the party will insist that GM radically and rapidly change the design of its vehicles once GM becomes a bank:

"If GM is a bank, that means that their cars must be their branches.  If so, then all future GM vehicles – cars, trucks, and minivans – must include bank-like features.  At a minimum  – ATMs.  I see no reason why the rear trunk of every vehicle can’t include an LCD screen, keypad, and a small deposit/withdrawal vault, that would be accessible to the public.  When the cars are parked, they should function as ATMs."

Sources suggest that the recently-chastened Republican Congressional minority "can go along" with this plan, but they are "drawing a line in the sand" in response to the latest suggestions floated by the Democratic Chairman of the Senate Subcommittee on Transportation and Community Development. 

According to senior Republican staffers, the Democrat insists that owners of new GM cars should be required to park their "automotive teller machines" overnight in communities currently under-served by traditional bank branches, even if those communities are distant from their own homes and neighborhoods.  This would provide the under-served communities with the "critical financial services access that they need and deserve." 

It appears that a middle-of-the-road compromise plan, requiring only that cars with odd-numbered license plates be positioned in under-served communities on days with odd-numbered dates (and similarly for even plates and days), had broken down following disagreements in two contentious areas:

• First, how should the legislation classify vanity plates without any numeric characters, and might they be completely exempt.
• Second, whether or not the legislation would apply, at all, to US elected representatives who bear a “special hardship” since they must maintain housing both in their home state as well as the District of Columbia. 

 
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I used to work with numbers for a living, but now I’m just watching the wheels come off of the economy and market while I look for my next job or ‘idea’.   Till next time.

REFERENCES [Accessed 13 Nov 2008]

 
D.M. Herszenhorn and C. Hulse, The New York Times – Democrats Seek Emergency Help For Automakers, [Front Page] 12 Nov 2008.

 
Wikimedia Commons, Wikipedia – 4 Stroke Engine.

J. Lennon, Double Fantasy – Watching The Wheels, Rhapsody/Capitol USA, 1980.