December 30th, 2008
11:06 AM ET

Financial Dispatch: Auto bailout widens

Program Note: Be sure to tune in to watch CNN Chief Business Correspondent Ali Velshi give us an update on today's economic news tonight on AC360° at 10pm ET.

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/US/12/29/us.auto.bailout/art.cars.gi.jpg caption="The government said late Monday that it’s taking a $6 billion stake in GMAC, the financing arm of General Motors."]

Andrew Torgan
CNN Financial News Producer

There’s an old saying in the car business: “actual sticker price may vary.” The same is holding true for the bailout of the auto industry. The government said late Monday that it’s taking a $6 billion stake in GMAC, the financing arm of General Motors. The Treasury Dept. is injecting $5 billion directly into GMAC in exchange for preferred equity shares. It will also lend $1 billion to GM that the automaker will invest in GMAC, which needs the funding to convert to a bank holding company - a necessary step to receiving the bailout money. GMAC is critical to the automaker's recovery. It’s the biggest lender to GM's 6,500 dealers nationwide, providing financing they need to operate and buy vehicle inventory. The failure of GMAC could spark widespread failures among GM's dealership network and cut even more deeply into auto sales.

More bad news on the housing front this morning… home prices posted another record decline in October, falling 18% compared with a year earlier. The 20-city S&P Case-Shiller Index has posted losses for a staggering 27 months in a row, with 14 of the 20 cities setting new price decline records in October. Sunbelt cities suffered the most, but most of the country is watching home values fall. In Phoenix prices have plunged 32.7% since October 2007, Las Vegas home values are down 31.7% year-over-year, while San Francisco prices fell 31%. Miami, Los Angeles, and San Diego recorded year-over-year declines of 29%, 27.9% and 26.7%, respectively.

Consumer Confidence, meanwhile, fell to a new all-time low in December amid a dismal job market and an uncertain outlook for 2009. The news comes at the end of a full year of recession, during which the credit crunch strained the nation’s financial system.

Stocks opened higher on the penultimate trading day of the year. The last few sessions have been pretty tame, with the Dow ticking down just 31 points Monday. And we may be looking at much of the same hesitation today, as most mutual funds and other big traders have already closed their books on 2008.

Oil prices are back below $39 a barrel, pressured by dismal prospects for world economic growth that are outweighing tensions in the Middle East. Prices jumped as much as 12% on Monday after Israel launched an offensive in the Hamas-ruled Gaza strip.

Gas prices are down 0.3 cents to $1.616 a gallon. The current national average is now $2.498 below the record high price of $4.114 that AAA reported on July 17, 2008. Two states have regular unleaded gas prices of $2 and higher. 48 states and the District of Columbia have regular unleaded gas prices below $2. The most expensive gas in Alaska ($2.650), while the cheapest is in Wyoming ($1.443)

And finally, we have cars powered by biofuel… so why not air planes? Air New Zealand today completed a successful flight of a jet powered in part by vegetable oil. Continental is hoping to become the first U.S. airline to do the same next week. We know biofuel is better for the environment than standard jet fuel, but is it cheaper? And will airlines eventually use biofuel for commercial flights? That’s today’s “Energy Fix.”

Filed under: Andrew Torgan • auto bailout • Economy • Energy • Finance • Gas Prices • Housing Market • Oil
soundoff (5 Responses)
  1. earle,florida

    Prediction : GMAC will be gobbled-up by Chrysler/Cerberus for a financial coup never seen in modern day business history! They basically own the majority stake with real (51%) money backers behind them,ready to buy up their debt once they get the "Bank Holding Co." confirmation. If GM wants to sell their cars under their umbrella so be it. Important to note that Dan Qualye (former Bush#41 VP) ,and John Snow (former Bush#43 treasury secretary) are on the BOD's (executive committee) of Cererus (Private Company, but who cares?). Oh, did I forget to tell ya, that all of GWB's assets are in a blind trust,...? Try to think outside of the box ,folks,....

    December 30, 2008 at 1:33 pm |
  2. GF, Los Angeles

    I'm so happy housing prices are falling – these over priced half a million dollar houses in CA are finally becoming more affordable for the average Joe.

    December 30, 2008 at 1:19 pm |
  3. Peter

    I do not agree with the government solution, of just throwing money, at the problem. Do we even know, what the balance sheets of this and/or any of these bailout companies are ? We, the little people, will be paying for this bailout, sooner or later, but we will pay. Why ? Simple, our government doesn't have this money, but never gets denied for a loan. Amazing...I should go apply for a bailout too...hardequity.net

    December 30, 2008 at 1:09 pm |
  4. JC- Los Angeles

    I can't wait for the day when, after receiving billions of taxpayer dollars, the horridly run auto companies, AIG or any others of their ilk, file for bankruptcy.

    Our nation has been run into the ground by horrid leaders, executives and politicians who play with house money and then continually ask taxpayers for do-overs.

    It's nothing short of an abject national embarrassment.

    December 30, 2008 at 12:52 pm |
  5. Cindy

    I'm glad that they finally are helping the auto industry and not letting them fail. Doing so would have been catastrophic to our economy.


    December 30, 2008 at 11:53 am |