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GMAC Plans IPO to Repay Aid

February 26, 2010
3 min to read


WASHINGTON — GMAC Financial Services plans to return to the stock markets with an IPO in the next two years, in a move aimed at gradually exiting from government help and eventually repaying its rescue aid, the auto lender's chief executive said.


GMAC Chief Executive Michael Carpenter's remarks, made during a congressional hearing Thursday on the government's intervention in the auto industry during the financial crisis, came as Treasury Department officials declared GMAC well capitalized and able to borrow again after three injections of U.S. taxpayer dollars, The Wall Street Journal reported.

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"GMAC is also now able to secure external funding for its ongoing operations, a critical step toward its independence," the Treasury officials, Jim Millstein and Ron Bloom, said in a joint statement before the Congressional Oversight Panel.


Millstein, the Treasury's chief restructuring officer, said he didn't anticipate GMAC needing more government money beyond the U.S. aid it had already received, totaling about $16.3 billion.


GMAC, formerly a wholly owned subsidiary of General Motors Co. that is now majority-owned by the U.S. government, provides financing for thousands of GM and Chrysler Group LLC dealerships, as well as their customers. The company ran into trouble in late 2008, as the housing crisis dragged down its mortgage business, Residential Capital LLC, or ResCap, a subprime lender. It also suffered losses from auto loans.


Carpenter also said he didn't expect GMAC to seek additional government aid. He said an initial public offering would allow the company to begin repaying the U.S. loans, a process that he said could take several years.


While the IPO is unlikely to allow for a full repayment, he said, it would pave the way for subsequent offerings. "This would allow us to return to being an investment-grade credit, reducing our capital requirements, and begin the process of paying back the U.S. taxpayer in full," he said.

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Responding to questions about ResCap, Carpenter said the firm was exploring a number of options. He said the business has been successfully walled off from the rest of the organization, and that a strategic plan was in the works. He added that GMAC was in the process of selling some of its mortgage assets.


Bloom, the administration's chief auto adviser, said the future of the U.S. auto industry would depend on policy makers' ability to restore the flow of credit to dealers and their customers. He and Millstein said in their statement that the government remained a "reluctant" shareholder in GMAC and other private firms. They said the Treasury planned to exit from its investment in the auto-finance firm through a gradual sale of shares, but as soon as possible.


They said the administration's decision to pump billions of dollars into the U.S. auto industry, and GMAC specifically, have steadied the U.S. auto industry, with the value of vehicles made by U.S. auto makers "stabilizing."


The officials said the Treasury continued to move to wind down certain programs, including an aid program for auto supplies that was expected to end in April.

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