General Motors is acquiring the automotive financing business of Ally Financial in Europe, South America and China, the companies said Wednesday.
GM will contribute $2 billion to GM Financial, which will absorb the international operations of Ally. The deal enhances GM's ability to provide financing to dealers and consumers outside the U.S. It also provides Ally with cash it needs to repay the balance of more than $10 billion it owes on emergency loans the U.S. Treasury made to it in 2009.
The U.S. government still owns 74% of Ally, formerly known as GMAC, GM's in-house financing unit until the automaker spun it off into a separate company in 2006.
GM established GM Financial in 2010 to support its dealers and provide financing to customers in the U.S. and Canada. With this acquisition GM Financial will be able to support GM customers and dealers in markets from which GM draws 80% of its global sales.
Ally has been selling assets outside of its core U.S. auto financing business. Earlier this year, it placed its money-losing Residential Capital real estate financing subsidiary into Chapter 11 bankruptcy to separate it from the healthy and dispose of its portfolio of largely worthless mortgage-back securities. GM bid for Ally's international operations in August.
GM Chief Financial Officer Daniel Ammann said last month that the company sees an opportunity for the financing operations to "help us sell more cars around the world and have some of the same success there that we've had with this business."
Still, he emphasized that the company will limit its captive financing capabilities because it does not want to "recreate a $300 billion monster, which is what GMAC was at the peak back in 2006."
As result of the acquisition, GM Financial's assets will double to approximately $33 billion and its liabilities, including consolidated debt, will increase to about $27 billion, up from about $12 billion today.
GM dealers in the U.S. already offer Ally loans to most of their customers, but the automaker wants to solidify its ability to secure financing for its consumers in other markets. In Europe, for example, a sovereign debt crisis is sapping access to credit for some consumers, adding to the auto industry's troubles there.
"We believe that by having our own capabilities in key segments of the market we will be able to achieve more competition, which we believe will improve pricing to our dealers and retail customers, and better service from the market, while ensuring certainty of financing availability through the business cycles," GM said in its third-quarter SEC filing.
Through a trust, GM owned 9.9% of Ally as of Sept. 30, according to SEC filings. The automaker, which must dispose of the stock by Dec. 31, 2013, has estimated its carrying value at $404 million.
Distributed by MCT Information Services
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