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GM may return to auto financing

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GM may return to auto financing

Options include buying back former GMAC, sources say

David Shepardson and Robert Snell / The Detroit News

General Motors Co. is exploring options for returning to the auto finance business, including buying back part of its former GMAC unit, now called Ally Financial Inc., according to people familiar with the matter.

GM spokesman Selim Bingol declined to discuss the move, first reported by Bloomberg News on Tuesday, calling it "speculation."

Any decision would have to be approved by the Treasury Department, which owns a 61 percent stake in GM and a 56.3 percent stake in the former GMAC, which was renamed Ally on Monday.

The Treasury infused $17.2 billion in the finance company and $50 billion in GM.

While captive finance arms have generally been a source of revenue for automakers, the situation with Ally is more complicated.

For one thing, Chrysler Group LLC depends on Ally for a large percentage of its financing. The company financed 34 percent of GM sales in the first quarter, up from 30 percent the prior three months, and 42 percent of Chrysler sales, up from 26 percent.

In March, the Congressional Oversight Panel, which supervises the $700 billion Wall Street and auto bailouts, said the Treasury Department should consider recombining GM and the finance company. It predicted the Treasury would lose $6.3 billion on its investment in what was then called GMAC.

That step "would restore GM's financing operations to the model generally shared by other automotive manufacturers."

The Treasury earlier this year said that a merger also would have to be approved by the companies' boards.

Ally Financial spokeswoman Gina Proia said Tuesday the company wouldn't comment on speculation. But she said GM is an important partner and it financed 88 percent of GM's U.S. dealers.

"We believe the advantages of our current model over that of a captive finance company," Proia said.

"By doing business with us, our (automaker) partners do not need to invest the billions of dollars of equity capital necessary to maintain a large balance sheet of loans and can instead focus on their core business of engineering and manufacturing vehicles for their dealers to sell," she said.

Last week, the company reported net income of $162 million in the first three months of the year -- its first profitable quarter since 2008.

From The Detroit News: http://www.detnews.com/article/20100512/AUTO01/5120325/1148/auto01/GM-may-return-to-auto-financing#ixzz0nianWnVA

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GM eyes return to car loan business

No action said to be imminent, though

BY TIM HIGGINS

FREE PRESS BUSINESS WRITER

General Motors is looking at the possibility of returning to the car lending business.

GM gave up majority control of finance-arm GMAC, now known as Ally Financial, in late 2006 as part of efforts to raise cash for ongoing restructuring.

As a new company, thanks to a U.S. government-backed bankruptcy last year, GM's balance sheet is greatly improved.

GM finished repaying $8.4 billion in loans from the U.S. Treasury and Canadian governments last month -- well ahead of schedule. But for taxpayers to recoup their investment in GM, the company must go public again, something that officials have said could occur as soon as late this year.

GM Chairman and CEO Ed Whitacre is looking at options to either buy back the auto lending business from GMAC or create a new finance arm, the Free Press has learned. Nothing is believed to be imminent.

The development was first reported by Bloomberg News.

Tom Wilkinson, a GM spokesman, declined comment. "It's speculation," he said.

A captive finance arm, which can be quite lucrative, could give GM greater ability to sell cars and help dealers get credit to run their businesses. Dealers have been complaining about difficulties in getting credit in the current market.

Rebecca Lindland, an industry analyst with IHS Global Insight, said such a move could make sense for GM if structured in the right fashion. "I think it's a really great way to be able to regain control over the ability to sell cars," she said.

GM's upcoming initial public offering is surely influencing the matter. "Absolutely every decision that this company is making is based around the IPO," Lindland said.

With GM's sales up in recent months, some might argue that the automaker hasn't been hindered under its current set-up with Ally. GM's U.S. sales are up 14% through the end of April compared with last year.

Ally posted a $162-million first-quarter profit this year, which reversed a $675-million loss during the same period last year.

The U.S. Treasury owns 56% of the lender, which has received $17.2 billion in taxpayer loans since the 2008 financial crisis.

Gina Proia, an Ally spokeswoman, declined comment about GM's interest, calling it "speculation." She added that GM is an important partner to Ally.

"We are focused on helping them be successful in selling more vehicles," she said in an e-mail.

LINK:

http://www.freep.com/article/20100512/BUSINESS01/5120330/1331/BUSINESS01/GM-eyes-return-to-car-loan-business

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