FOR RELEASE: 2005-07-26

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GMAC Agrees to Sell Up to $55 billion of U.S. Retail Automotive Assets to Bank of America over five years

Deal provides new automobile finance investment opportunities for Bank of America and committed source of funding for full spectrum of active retail auto contracts for GMAC


Detroit; Charlotte, NC - General Motors Acceptance Corp. (GMAC), the financial services subsidiary of General Motors Corp. (NYSE: GM), and Bank of America (NYSE: BAC) today announced a long-term strategic financing agreement regarding GMAC's U.S. automotive retail assets. The agreement calls for a committed purchase by Bank of America of up to $55 billion worth of GMAC retail automotive contracts over a five-year period, commencing July 2005 and concluding June 2010.

Bank of America will make an initial purchase of $5 billion. In each of the agreement's five fiscal years (July 1-June 30), Bank of America will purchase up to $10 billion of GMAC's full spectrum of active U.S. retail auto finance contracts. GMAC will continue to service the auto finance contracts.

The agreement expands the existing relationship between GMAC and Bank of America. GMAC will be able to accelerate its planned transition from an "originate and store" to an "originate and sell" U.S. auto finance business model, while Bank of America makes a significant investment to grow its automotive finance business.

"This agreement allows Bank of America to leverage our low cost of funding, risk management expertise and strong lending base to the benefit of an important client," said Tim Russi, president of Bank of America Dealer Financial Services -- the auto, motorcycle, marine and recreational vehicle financing unit of Bank of America. "Our strategic investment in systems, data, people and processes over the past several years has positioned us to capitalize on this opportunity and significantly expand our share of the auto financing market."

Sanjiv Khattri, GMAC's executive vice president and chief financial officer, said, "We are very pleased to enter into this landmark agreement with Bank of America, our long-time partner in so many innovative transactions. This agreement leverages GMAC's world-class origination and servicing capabilities with Bank of America's world-class funding capabilities. It allows GMAC to fulfill its strategic mission to finance more GM vehicles, without undue strain on the balance sheet. This further advances GMAC toward its 'originate and sell' business model in U.S. auto finance, providing us far greater flexibility to reallocate capital and further diversify the business portfolio."

Bank of America

Bank of America is one of the world's largest financial institutions, serving individual consumers, small and middle market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk-management products and services. The company provides unmatched convenience in the United States, serving 33 million consumer relationships with more than 5,800 retail banking offices, more than 16,700 ATMs and award-winning online banking with more than twelve million active users. Bank of America is the No. 1 overall Small Business Administration (SBA) lender in the United States and the No. 1 SBA lender to minority-owned small businesses. The company serves clients in 150 countries and has relationships with 98 percent of the U.S. Fortune 500 companies and 85 percent of the Global Fortune 500. Bank of America Corporation stock (ticker: BAC) is listed on the New York Stock Exchange.

GMAC

General Motors Acceptance Corporation and its subsidiaries, operating under the umbrella GMAC Financial Services, provide automotive financing, commercial finance, insurance and mortgage products, and real estate services, and have a presence in more than 40 nations. A wholly owned subsidiary of General Motors since 1919, GMAC has extended more than $1.3 trillion in credit to finance more than 158 million vehicles.

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Forward-Looking Statements

Bank of America

This press release contains forward-looking statements about Bank of America Corporation. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ include, among other things, the following: 1) projected business increases following process changes and other investments are lower than expected; 2) competitive pressure among financial services companies increases significantly; 3) general economic conditions are less favorable than expected; 4) political conditions including the threat of future terrorist activity and related actions by the United States abroad may adversely affect the company's businesses and economic conditions as a whole; 5) changes in the interest rate environment reduce interest margins and impact funding sources; 6) changes in foreign exchange rates increases exposure; 7) changes in market rates and prices may adversely impact the value of financial products; 8) legislation or regulatory environments, requirements or changes adversely affect the businesses in which the company is engaged; 9) litigation liabilities, including costs, expenses, settlements and judgments, may adversely affect the company or its businesses; and 10) decisions to downsize, sell or close units or otherwise change the business mix of any of the company. For further information regarding Bank of America Corporation, please read the Bank of America reports filed with the SEC and available at www.sec.gov.

GMAC

In this press release and related comments by General Motors Acceptance Corporation management may contain forward-looking statements within the meaning of the federal securities laws. In some cases, you can identify these statements by our use of forward-looking words such as "may," "will," "should," "anticipate," "estimate," "expect," "plan," "believe," "predict," "potential," "project," "intend," "could" or similar expressions. In particular, statements regarding plans, strategies, prospects and expectations regarding the business are forward-looking statements. You should be aware that these statements and any other forward-looking statements in this document only reflect expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Many of these risks, uncertainties and assumptions are beyond our control, and may cause actual results and performance to differ materially from our expectations. Accordingly, you should not place undue reliance on the forward-looking statements contained in this information. These forward-looking statements speak only as of the date on which the statements were made. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

http://biz.yahoo.com/rb/050726/autos...cing.html?.v=7

This loan sale might not be a positive sign.

GM should have spun off GMAC. A GMAC spin-off probably would have generated more value for the shareholders - and preserved more shareholder value in the event of the "worst case scenario." At very least, it would have insulated GMAC from GM "junk" status.

I don't see where this sale is good news.

 

This says two things to me: (1) GM foresees a need for cash in the near future for additional operating capital to offset current and projected operating losses (which can be financed with further borrowing or the sale of assets) (not good); and (2) GM's current junk status (and historically poor financial performance) has made it too expensive to borrow on the open market, hence the need to sell assets to finance operations (also not good).

GM is flush with cash for now so this sale is either a major hedge on GM's part or indicative of pessimistic internal financial models being generated internally for top management. I'm with Redzed on this one. This does not look like a good long term sign for GM.

 

Since GMAC borrows money to lend money, this arrangement could be just as profitable as carrying the loan themselves while reducing their overall debt load. One would have to know the numbers to form an informed opinion.

 

Agree, I don't think any of us know the numbers to make a fair judgement. I say a deal with Bank of America could be a good move - but only time will tell.

 

I would like to hear an un-opinionated summary of the deal and how it will affect GM and GMAC before judging. I will say this: when I worked for Circuit City and they sold off their credit card division, similar play. They still made money by offering credit cards but without the load of covering the possible debt. Basically they got a kickback for setting up the financing. It doesn't seem to have hurt CC but who knows what will happen to GM.

 

The way that it effects them is that GM is now in the approve and sell buisness ratrher then the approve and collect buisness. They make less on the backend but get a faster turn around on the profit.

 

For what it is worth, Wall Street liked the news as GM was up 1.06 in trading yesterday. Too bad I didn't have the ***** to get in at $25, could have made 30% in a few months.

 

I was waiting for $25 and never saw it. Did it get down to $25??

 

On paper. If you had, would you be holding or selling now?

 

52 week range: 24.67 - 44.20

I don't know much about stocks, but I would have probably sold it yesterday. I dont know how steady it's going to trade for a little while here until they get their credit back up, figure out union issues and lay out a solid roadmap. That's why I didn't get in it in the first place, but the egg is on my face. Someone made good money on it.

 

How easy will it be for BoA to do what they do best and screw over all the new customers that they are buying?

 

Terms are already set, they are just buying your debt. Banks do this all the time with car loans and mortgages.

 

Here's another article on it with a little less rah-rah.

http://biz.yahoo.com/rb/050727/autos...ings.html?.v=1