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GM Again Sees Need for GMAC

January 11, 2011
4 min to read


DETROIT — General Motors Co. is revisiting the idea of buying back part of its former GMAC auto loan business, half a year after it acquired a subprime loan company to help fill the role of an in-house lender, according to three people familiar with the situation.


GM executives are weighing the idea of a new approach to Ally Financial, the renamed GMAC, to give the auto maker's dealers better access to wholesale credit, reported The Wall Street Journal.

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Six months ago Ally turned down GM's $5 billion offer for its wholesale business.


Instead, GM purchased Americredit Corp. for $3.5 billion but that lender, now part of GM Financial, is primarily in subprime consumer financing.


So far, GM hasn't approached Ally Financial about the potential for a purchase, and there is no indication whether the lender would be open to a proposal, the people familiar with the situation said.


The U.S. government—which owns 74 percent of Ally and 26.5 percent of GM—could play a role in any such arrangement, the people said.


Ally ended up needing a government bailout after its mortgage business suffered major losses; its car-financing business remained relatively solid.

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Ally and the Treasury declined to comment.


GM, far more than its rivals, depends on outside banks for the majority of its consumer lending and dealer financing. That leaves GM more dependent and exposed to risk than competitors that are able to use their in-house lenders to bolster sales in tough times.


In 2008, a move by Ally, then called GMAC, to dramatically restrict leasing amid the U.S. financial crisis helped trigger the spiral that sent GM into bankruptcy in 2009.


Ally, which received $17.2 billion in U.S. bailout funds, is readying an initial public offering for as soon as this year in which the Treasury would sell its stake in the bank. Investors will likely seek clarity on Ally's relationship with GM and the future of its auto loan business before the company returns to the public markets.


GM Chief Executive Daniel Akerson, a former private equity deal maker, is in favor of a renewed approach to Ally, according to one of the people.

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Dealers, who pay for cars and trucks when they arrive in showrooms, use wholesale credit to finance that inventory. If dealers are unable to access credit or are forced to pay high rates, they risk being unable to obtain vehicles.


GM executives want to expand its in-house lending business so the company is less vulnerable to market fluctuations, these people said.


In a downturn, "we might be exposed" to the risk of not having enough wholesale financing for dealers, GM finance chief Chris Liddell said in an interview Monday at the Detroit auto show. "It's critical we have credit flowing in those times."


While Mr. Liddell said he is reluctant to take a step back into the business of being a full-line lender he would consider a smaller approach.


"I am philosophically against having a $100 billion finance company attached to a $50 billion to $60 billion car company," he said. "In a [market] downturn, we might be exposed. It's critical we have credit flowing through those times."

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AmeriCredit, over which GM has total control, has around $10 billion in assets. Mr. Liddell said AmeriCredit could grow to around $15 billion, but not more. The captive lenders at Ford Motor Co. and Toyota Motor Corp. have assets of $108 billion and $84 billion, respectively.


"Returning to captive financing is likely a prerequisite for maintaining U.S. market share over 20 percent longer term," Morgan Stanley analyst Adam Jonas wrote in a recent research note. "While impossible to quantify, we believe GM is ceding hundreds of basis points of U.S. market share to competitors with integrated finance operations."


A plan to buy back the former GMAC auto lending business could have significant hurdles. Ally Chief Executive Michael A. Carpenter shot down GM's earlier offer for its wholesale-lending operation.


Ally, under Mr. Carpenter, has made it a goal to increase the company's auto loan operation, which also is the primary lender for Chrysler LLC.


Contention between former GM CEO Edward E. Whitacre Jr. and Mr. Carpenter further complicated the auto maker's efforts to cut a deal with Ally. The relationship between the two companies could be different with GM's new CEO, Mr. Akerson.

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