AP Source: GM wants to re-enter auto financing
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AP Source: GM wants to re-enter auto financing
DETROIT (AP) -- General Motors Co. executives want their own auto-financing arm so they can offer more competitive lease and loan deals, according to a person briefed on their plans.
The executives want to buy back the auto financing business from the former GMAC Financial Services or start their own operations, said the person, who asked not to be identified because the plans have not been made public.
A top GM executive has told dealers about the plans, the person said.
GM sold a 51 percent stake in GMAC Financial Services in 2006 when it was starved for cash. The new owners, led by private equity firm Cerberus Capital Management LP, ran into trouble in 2008 with bad mortgage loans and had to be bailed out by the federal government, which now owns 56 percent of the company.
Earlier this month, GMAC changed its name to Ally Financial.
GM dealers say that since GMAC is responsible for making its bottom line look good, it is less likely to lose money by offering to finance sweet lease deals or zero-percent financing. A GM-owned auto financing business would be more likely to "take a bullet" for the company to sell more cars and trucks, the person said.
Competitors, such as Ford Motor Co. or Toyota Motor Corp., control their own financing arms.
GM spokesman Tom Wilkinson said Tuesday that the company would not comment on speculation.
He said GM currently has a variety of financing options with Ally Financial and through agreements with banks and credit unions.
GM, which is 61 percent owned by the taxpayers and has received about $50 billion in U.S. government aid, plans to report earnings next week. Executives including CEO Ed Whitacre have been upbeat about the results and have implied that the company will make a profit.
A profitable quarter coupled with a slowly rebounding U.S. auto market could mean that GM would have the cash to make an acquisition or start its own business.
GM executives have said the company is taking in more cash than expected from rising prices for its newly redesigned vehicles, including the Chevrolet Equinox crossover vehicle, Buick LaCrosse luxury sedan and Chevrolet Malibu midsize sedan.
For the period from July 10, when GM emerged from bankruptcy protection after shedding billions in debt, through Dec. 31, the automaker lost $4.3 billion.
GMAC has received $16.3 billion in loans from the federal government, which views the lender as crucial to the success of GM and Chrysler Group LLC. GMAC is the preferred lender for both bailed-out automakers.
But a government watchdog earlier this year criticized the GMAC bailout, calling it "baffling" and saying the government stands to lose billions of dollars.
Earlier this month, GMAC Financial Services posted its first quarterly profit in more than a year.
The Detroit-based company reported first-quarter earnings of $162 million compared with a year-ago loss of $675 million.
The executives want to buy back the auto financing business from the former GMAC Financial Services or start their own operations, said the person, who asked not to be identified because the plans have not been made public.
A top GM executive has told dealers about the plans, the person said.
GM sold a 51 percent stake in GMAC Financial Services in 2006 when it was starved for cash. The new owners, led by private equity firm Cerberus Capital Management LP, ran into trouble in 2008 with bad mortgage loans and had to be bailed out by the federal government, which now owns 56 percent of the company.
Earlier this month, GMAC changed its name to Ally Financial.
GM dealers say that since GMAC is responsible for making its bottom line look good, it is less likely to lose money by offering to finance sweet lease deals or zero-percent financing. A GM-owned auto financing business would be more likely to "take a bullet" for the company to sell more cars and trucks, the person said.
Competitors, such as Ford Motor Co. or Toyota Motor Corp., control their own financing arms.
GM spokesman Tom Wilkinson said Tuesday that the company would not comment on speculation.
He said GM currently has a variety of financing options with Ally Financial and through agreements with banks and credit unions.
GM, which is 61 percent owned by the taxpayers and has received about $50 billion in U.S. government aid, plans to report earnings next week. Executives including CEO Ed Whitacre have been upbeat about the results and have implied that the company will make a profit.
A profitable quarter coupled with a slowly rebounding U.S. auto market could mean that GM would have the cash to make an acquisition or start its own business.
GM executives have said the company is taking in more cash than expected from rising prices for its newly redesigned vehicles, including the Chevrolet Equinox crossover vehicle, Buick LaCrosse luxury sedan and Chevrolet Malibu midsize sedan.
For the period from July 10, when GM emerged from bankruptcy protection after shedding billions in debt, through Dec. 31, the automaker lost $4.3 billion.
GMAC has received $16.3 billion in loans from the federal government, which views the lender as crucial to the success of GM and Chrysler Group LLC. GMAC is the preferred lender for both bailed-out automakers.
But a government watchdog earlier this year criticized the GMAC bailout, calling it "baffling" and saying the government stands to lose billions of dollars.
Earlier this month, GMAC Financial Services posted its first quarterly profit in more than a year.
The Detroit-based company reported first-quarter earnings of $162 million compared with a year-ago loss of $675 million.
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GM would probably want to acquire only the automotive business, said Mark Wakefield, a director at turnaround firm Alix Partners, which is winding down the bankrupt old GM, now called Motors Liquidation Co.
GM probably wouldn't want GMAC's mortgage business, which was called ResCap until the company changed names, he said. It made $175 million in the first quarter after losing $17.3 billion from 2007 through 2009.
“The cleanest way to do this is to buy only the auto finance business and leave ResCap, Ally Bank and the commercial warehouse-lending business alone,” said Wakefield, who isn't directly involved in the matter.
GM probably wouldn't want GMAC's mortgage business, which was called ResCap until the company changed names, he said. It made $175 million in the first quarter after losing $17.3 billion from 2007 through 2009.
“The cleanest way to do this is to buy only the auto finance business and leave ResCap, Ally Bank and the commercial warehouse-lending business alone,” said Wakefield, who isn't directly involved in the matter.
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Thats what I was thinking. Bring the Auto end of GMAC back into GM with a clean balance sheet, and then leave the rest to either find a way to live..or die. GMAC should have never been in mortgages and what not anway. GMAC was a huge profit center for old GM, and was often the difference between making and losing money in some quarters. I think the government will have to do this to make GM look better for IPO. I do wonder however how Chrysler falls in here since their stuff is all GMAC financed. If I were Chrysler, I would not want to be financing my cars with a competitors company. They could own it as a partnership, but that already failed ones.
I was wondering why my GMAC bills no longer said GMAC on the
I was wondering why my GMAC bills no longer said GMAC on the
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Update:
General Motors actively seeking finance partner
By Mark Kleis
As General Motors appears to be approaching the crucial point in which it will hold its initial public offering, the automaker is now actively seeking a new partner in a financial institution in order to help secure more sales to customers with lower credit scores.
Leftlane reported on May 17th that GM was in talks with its main financial lending arm – Ally Financial, previously known as GMAC – in regards to loosening credit requirements for its auto loans. the Detroit-based automaker argued that it was leaving sales on the table due to its inability to aggressively finance customers who may not otherwise qualify for loans.
“They’re [Honda] able to finance their cars at a much lower level than we are,” said GM’s N. American president, Mark Reuss. “I’m not sure what the answer is. But it would sure help my sales, the company’s sales in North America, if we were able to get access.” The AP points out that roughly 16 percent of new car sales go to buyers with subprime ratings, effectively reducing GM’s potential client base.
Now, according to the Associated Press, GM has abandoned its efforts with Ally, as well as the possibility of starting a new internal finance arm, and is instead seeking a new partnership with an outside firm.
Analysts at Fox News are suggesting that this move by GM only further solidifies the notion that the automaker is on the path to achieving its IPO. Should GM be able to secure a lending arm that would be capable and willing to finance its subprime buyers, the automaker would appear stronger and be able to drive more revenue from the sale of its shares.
By Mark Kleis
As General Motors appears to be approaching the crucial point in which it will hold its initial public offering, the automaker is now actively seeking a new partner in a financial institution in order to help secure more sales to customers with lower credit scores.
Leftlane reported on May 17th that GM was in talks with its main financial lending arm – Ally Financial, previously known as GMAC – in regards to loosening credit requirements for its auto loans. the Detroit-based automaker argued that it was leaving sales on the table due to its inability to aggressively finance customers who may not otherwise qualify for loans.
“They’re [Honda] able to finance their cars at a much lower level than we are,” said GM’s N. American president, Mark Reuss. “I’m not sure what the answer is. But it would sure help my sales, the company’s sales in North America, if we were able to get access.” The AP points out that roughly 16 percent of new car sales go to buyers with subprime ratings, effectively reducing GM’s potential client base.
Now, according to the Associated Press, GM has abandoned its efforts with Ally, as well as the possibility of starting a new internal finance arm, and is instead seeking a new partnership with an outside firm.
Analysts at Fox News are suggesting that this move by GM only further solidifies the notion that the automaker is on the path to achieving its IPO. Should GM be able to secure a lending arm that would be capable and willing to finance its subprime buyers, the automaker would appear stronger and be able to drive more revenue from the sale of its shares.
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from the original article:
"GM dealers say that since GMAC is responsible for making its bottom line look good, it is less likely to lose money by offering to finance sweet lease deals or zero-percent financing. A GM-owned auto financing business would be more likely to "take a bullet" for the company to sell more cars and trucks, the person said."
Of course the dealers want a lender to "take a bullet" for them, but how can a corporation allow one branch to be a sacrificial lamb for another and expect long-term success? I don't see how it would help GM to be purposely irresponsible in lending to customers that default on their loans. I don't understand why an internal or independant lender would want to knowingly take on a high number of high-risk loans. If someone else understands, please explain it to me.
"GM dealers say that since GMAC is responsible for making its bottom line look good, it is less likely to lose money by offering to finance sweet lease deals or zero-percent financing. A GM-owned auto financing business would be more likely to "take a bullet" for the company to sell more cars and trucks, the person said."
Of course the dealers want a lender to "take a bullet" for them, but how can a corporation allow one branch to be a sacrificial lamb for another and expect long-term success? I don't see how it would help GM to be purposely irresponsible in lending to customers that default on their loans. I don't understand why an internal or independant lender would want to knowingly take on a high number of high-risk loans. If someone else understands, please explain it to me.
Last edited by JeremyNYR; Jun 29, 2010 at 10:18 AM.
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I don't see how it would help GM to be purposely irresponsible in lending to customers that default on their loans. I don't understand why an internal or independant lender would want to knowingly take on a high number of high-risk loans. If someone else understands, please explain it to me.
People with lower credit scores usually get walloped with higher interest rates, so there's generally more money to be made....IF the loans are actually paid off. I'm wondering if anyone has learned anything from the subprime mortgage mess.
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I'm only taking a guess here, but I imagine the "high-risk, high-reward" theory may apply.
People with lower credit scores usually get walloped with higher interest rates, so there's generally more money to be made....IF the loans are actually paid off. I'm wondering if anyone has learned anything from the subprime mortgage mess.
People with lower credit scores usually get walloped with higher interest rates, so there's generally more money to be made....IF the loans are actually paid off. I'm wondering if anyone has learned anything from the subprime mortgage mess.
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As a former GMAC Rescap employee, I think it would be best for GM to cut bait and start a new financing arm from the ground up or through a different partnership. The GMAC brand has already been damaged thanks to the residential side. While I agree that GM got too wrapped up in non-core businesses, during the hey days of the mortgage bubble, GM made a lot of money from the Rescap side of GMAC. A big part of the problem with GMAC Rescap (besides the obvious accumulation of bad loans) was ****-poor management of the mortgage side of the business. Too many short-sighted people just trying to do a quick fix. I fully expect GMAC Rescap or Ally or whatever they want to call themselves will die soon.
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