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GM Won't Seek GMAC Reunion

March 17, 2010
2 min to read


General Motors Co. won't try to regain control of former finance arm GMAC Financial Services, an idea the automaker had considered as a way to bolster sales and make itself more attractive to potential investors, two people familiar with the matter told The Wall Street Journal. Earlier this month, the Congressional Oversight Panel suggested breaking apart GMAC, which is surviving on $17 billion in federal funding, and returning control of its auto-lending business to GM. The panel said GMAC has failed to establish a viable business plan to repay taxpayer dollars. The idea appealed to GM, in part because auto maker would have more control over lending practices. GMAC's move in 2008 to dramatically restrict leasing amid the U.S. financial crisis helped trigger the spiral that sent GM into bankruptcy the last year. GM over the last two years suffered more severe sales declines in the U.S. than Detroit rival Ford Motor Co. and continues to offer only a limited number of leases. Late last year, roughly 2% of GM's sales were through leases, down from a more typical 20%. Having control of GMAC's auto business also could make GM more attractive on Wall Street as the company seeks to launch an initial public offering as soon as this year. Ford, Honda Motor Co. and Toyota Motor Corp. all have so-called captive auto lenders. In that regard, GMAC could be considered a key strategic advantage. But taking over GMAC would have many complications. GM sold a majority stake in GMAC in 2006 as a way to buck up the auto maker's credit standing and its access to capital. As it turned out, GM still remains largely cut off from the markets. Meantime, GMAC is wrestling with its own complicated restructuring. The lender continues to struggle with deep losses at its mortgage arm, which lost $8.3 billion last year. A key part of the aid GMAC got from the U.S. was the ability to turn itself into a bank-holding company. The company is using new access to low-cost capital and growth of its Ally bank to compete more directly with banks such as J.P. Morgan Chase & Co. and Wachovia Corp. GMAC a year ago took over for Chrysler Financial as the preferred lender for Chrysler Group LLC, now controlled by Italian car maker Fiat SpA. GMAC is looking to win business other auto makers and recently agreed to work with Saab, recently split from GM.

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