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GM Looking to Rebuild Its Role in Auto Financing

Maker could abandon partnership with Cerberus.

by on May.12, 2010

An Ally no more?

Four years after selling a controlling stake in its finance subsidiary, GMAC, General Motors is reportedly looking for a way to get back into the auto loan business.

That could lead it to buy out Cerberus Capital Managerment, its private equity partner in what is now known as Ally Financial, Inc., or the Detroit automaker could set up an entirely new “captive” finance subsidiary, according to well-placed sources.

A senior GM official dismissed the story as “speculation,” though numerous company officials admit the automaker has been increasingly frustrated with its old lending unit and the way it has been managed by Cerberus since the 2006 sale.

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Awash in debt run up by bad housing loans, the former GMAC has stayed afloat only with the assistance of $17.2 billion in loans from the U.S. Treasury, which now owns a 56.3% stake in the lender.

During last year’s financial meltdown, GMAC all but stopped lending to potential General Motors customers, approving loans only to those with near-perfect credit scores.  And only recently has GM been able to get the lender to underwrite a significant number of leases, a serious disadvantage in the marketplace.

The Treasury Dept. would have to approve any move by GM – in which the government also holds a 61% stake after infusing $50 billion in rescue funds.  Complicating matters, Ally Financial is now the primary lender for Chrysler which, like GM, went through bankruptcy last year.  The smaller maker’s own captive finance arm was closed down as part of its bailout.

Anything that could damage Ally would not only threaten Chrysler’s access to auto loans but also pose a risk to Ally’s ability to eventually pay back the Treasury.

But in March, the Congressional Oversight Panel recommended that Treasury look into recombining what is now Ally with General Motors.  The panel, which oversees the auto and Wall Street bailouts, nonetheless cautioned that as much as $6.3 billion of the funds used to prop up GMAC would eventually be lost to the government.

On a more positive note, Ally last week reported its first profitable quarter since 2008, earning $162 million for January through March 2010.

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