GM to sell 51% of GMAC for $14 billion

Reuters / April 3, 2006 - 8:15 am



NEW YORK -- General Motors on Monday said it had agreed to sell a 51 percent stake in its financing arm, General Motors Acceptance Corp., to a consortium led by hedge fund Cerberus Capital Management LP for $14 billion, payable over three years.

The Cerberus-led investor group, which includes the private equity unit of Citigroup and Japan's Aozora Bank Ltd., had been viewed as the front-runner for the GMAC stake in what has been a complicated and drawn-out bidding process.

GM said GMAC will continue to be managed by its existing executive management following the deal, which is expected to close in the fourth quarter of 2006.

 

[hangs head in shame and says nothing]



This is NOT good long-term.

 

Smart move. They get the immediate cash infusion, as well as making GMAC healthier by not having their bond status tied to GM's.

 

And that's the whole point. GMAC will not be a cash cow for GM as long as it's credit rating is linked to GM.

You hate to sell a majority stake in an asset like that, but right NOW at this very moment, I think it makes sense.

 

The growth of hedgefunds and the financial power these new 'Fire-Breathing Dragons" of the economic ecosystem now have is amazing. Hedgefunds are now pretty much unregulated mutual funds and have more influence on the markets then many realize. While at first this move by GM might look like a bad one, but after you read articles like this http://money.cnn.com/2006/03/28/real...ears/index.htm about what's going happen with alot of home mortgages it looks like a brillant move.

 

I counter your CNN article with the following USAToday article...
http://news.yahoo.com/s/usatoday/200...NlYwMlJVRPUCUl

"The number of borrowers in trouble will rise this year and peak in 2007 and 2008 as the largest number of mortgages reset to higher rates, according to First American Real Estate Solutions, a real estate data provider."

"Already, in West Virginia, Alabama, Michigan, Missouri and Tennessee, about one in five homeowners with a high-interest (subprime) ARM was at least 30 days late at the end of last year, according to the Mortgage Bankers Association. After 90 days, the foreclosure clock starts ticking."

I don't think I'd START puting my money into the real estate market at this point in the game, the peak has passed IMO.

It is truely amazing how the press can find data and put a spin on any topic and make it look the way they want it too sometimes, isn't it?

 

On a separate post - it really surprises me how you guys see this as a good move.

Divesting yourself of your most profitable subsidiary is NOT a good thing.
Losing controlling interest in it is NOT a good thing.
Buying it back later is a far reach at best, and is not likely to occur at all. The price to buy it back will surely be far greater than the selling price today, meaning that GM will have to outpace the earnings of it's best-performing subsidiary over a considerable span of time to generate earnings and capital to buy it back with... NOT easy to do!

One of the investors is based in Japan... there goes American profits overseas again... NOT good.

I noticed one poster even stated "They get the immediate cash infusion, as well as making GMAC healthier by not having their bond status tied to GM's."
Why do all financial issues in today's market have to yeild "immediate" results?
Doesn't any of the youger crowd ever think about ANYTHING more than 2 or 3 years into the future anymore? Everything is about "profits this quarter", "returns this year", etc, etc.

If someone doesn't start thinking about the future, there won't be one.
Selling your soul to the devil today solves your problem today, but what comes after today's party is over...

PERSONALLY, I would rather have seen GM seek a "mortgage" for 51% of their stake in GMAC rather than selling it off as they have. At least with an equity mortgage, you can pay off the debt early, save some money on interest, and you get to keep controlling interest in your income-generator throughout the entire life of the loan to boot.

With all due respect to those who oppose, I maintain my opinion and position... it's not good a good thing.

PS - I've got some cash put away... anybody out here willing to sell me 51% of the equity interest in YOUR HOUSE today at a bargain price?

 

I think we both agree the housing market has peaked and is now declining. I think GM divesting themselves out of a majority stake in an industry (GMAC) thats just started to come off its peak is a smart move. Historically speaking when housing goes into a decline it can happen very quickly while the declines themselves are not severe imediately since housing declines usually follow a downward trend over the course of years.

Markets regardless if it stocks or housing are not always logical in the short term since they exagerate both upside and downside trends (they tend to always overshoot logical valuations). This up-and-down exageration is where the opportunity is to make money in the short term if you buy or sell at the right time. A person can make money being either a bull or a bear but they will get slaughtered when they sit on their @$$ like a pig. While over a long period of time the markets are reasonable and do hold logical valuations, often in short-term they're like over-emotional and over-reactionary children.

Its not just that housing will decline, but the fact that home appreciation is what has given the consumer the extra money to go on a spending spree for the last 5+ years (many of us here in certain parts of SoCal have seen our homes triple in value the last 5 years). GM has sold millions of cars because of the extra money people got out of their homes and/or benefitting that people feeling wealthy. If the economy goes south not only will there be more home foreclosures but you will see a huge spike in people defaulting on cars loans and etc.

2/3rds of the entire US economy is driven by the consumer (retail) and if consumer spending starts to drop because they feel poorer since their home isn't worth as much - Watch out!!

 

The number of foreclosures is expected to jump in the next year or two as all the new home buyers enter years 3-5 of there mortgate. years 3-5 are historically when to most foreclosures take place.

http://news.goldseek.com/MillenniumW...1142784060.php

 

True, half of ALL home loans are 3 years old or less.

The following is a quote from that cnn article I posted previously.

 

They also have an otion to buy controlling interest back in 10 years...sounds like a great deal to me!

 

Sounds good to me as well. Unfortunately, they need the cash.

And for the people losing their homes or not making payments - is primary because all of the idiots that bought ARM loans. Why in THE HELL would you get an ARM loan when 30yr Fixed are at 5%??? Makes no sense at all to me...

 

I still say this is the beginning of the end for GM. Honestly, they are running out of things to sell. If they don't start making real money soon, it's going to get ugly.

 

I gotta agree. I guess I never realized how much financial trouble GM was in until the last few weeks when they've sold off their remaining Japanese alliances and then sold GMAC, the goose that laid the golden egg. Things must be worse than we could have imagined. (Anyone remember back around 2000 when GM was predicting profits of $10/share by 2005/2006?)

So what's going to happen after GM burns through this last infusion of cash they've raised? Despite 25 years of continuous restructuring and yearly promises of a turnaround, market share continues to free fall with no signs of stopping. GM's sales are down 15% so far this year. Wasn't the record number of new models launched in 2005 supposed to stop the bleeding? Nope, I guess not. And it doesn't look like there's much new stuff on the immediate horizon to put the brakes on the slide either.

I've honestly never been this pessimistic about GM's very ability to survive

 

Just six months ago everyone was saying that 2006 would start off with a bang with the launch of the new fullsize (and highly profitable) SUV's.

If people are still waiting for GM's "silver bullet" it looks like they already shot, but missed.

Ironically I'm more hopeful for GM over the longterm, but over the next 6-12 months I've never been more concerned for them.