Ally, the former GMAC, will shift its focus back to auto lending in the U.S. market.
Ally Financial Inc. – what used to be known as GMAC — plans sell its lending operations in Europe and Latin America, as well as its share in a joint venture in China, to General Motors Co. for $4.2 billion.
GM Financial, a wholly-owned GM subsidiary, will assume responsibility for the management of Ally’s international operations. The acquisition will also double the size of the GM Financial loan portfolio to more than $32 billion, General Motors’ Chief Financial Officer Dan Ammann said Wednesday.
“We’re bringing those assets back into the family, which we think will help us increase our sales around the world. We have a lot of new product launches coming all around the world, across Asia and China, Ammann said during a conference call with reporters. “It will help drive top line growth,” he said, adding, “We couldn’t be more pleased.”
The CFO also said the acquisition will give GM greater opportunity to expand its position in other markets since it will make it easier for the automaker to provide readily available loans to buyers who might otherwise not have access to affordable financing.
“It’s a huge customer retention tool,” added Ammann, who added Russia, Australia and Argentina are all potential targets for expansion. He stressed that “GM is entering the most aggressive rollout of new vehicles in its history and this acquisition will make us an even more formidable competitor by ensuring that competitive financing is available to our customers and dealers around the world.”
Outside observers praised the Ally acquisition, Deutsche Bank chief automotive analyst Rod Lache calling it a “significant positive (by which GM) will be able to enter new markets and make more competitive offers.”
The U.S. Treasury Department still own more than 70% of Ally Bank’s stock and the transaction is subject to regulatory approvals and is expected to close in stages during 2013.
Based on the third-quarter tangible book value for the combined operations, Ally would receive approximately $4.2 billion in proceeds from this transaction. That includes an approximately $550 million premium to tangible book value, which for the third quarter of 2012 was approximately $3.7 billion.
“In May, we began a process to pursue alternatives for our international operations in an effort to accelerate repayment plans for the U.S. Treasury’s remaining investment,” said Ally Chief Executive Officer Michael A. Carpenter. “This transaction represents the third and final agreement in recent weeks toward those goals, and, combined, these sales are expected to generate approximately $9.2 billion in proceeds.”
Carpenter said Ally is focused on completing each of these transactions and evaluating options to return capital to the U.S. Treasury.
“Going forward, we remain squarely focused on further strengthening and growing our leading U.S. automotive services and direct banking franchises,” said Carpenter. “We have strong momentum in these businesses, and continued successful execution of our strategic plans will enable these operations to further thrive.”
The transaction includes auto finance operations in Germany, the U.K., Austria, France, Italy, Switzerland, Sweden, Belgium, the Netherlands, Luxembourg, Brazil, Mexico, Colombia and Chile, as well as a 40% equity stake in a joint venture in China.
The combined operations in Europe and Latin America represented approximately $16.1 billion in assets at the end of the third quarter 2012.
In October, Ally announced agreements to sell its Mexican insurance subsidiary, as well as its auto finance and deposit businesses in Canada.
With the agreement to sell the operations in Europe, Latin America and the joint venture stake in China, Ally will have effectively exited the international market, Carpenter said.
Ally Bank is the successor to the old General Motors Acceptance Corp. GM sold half its interest in Ally to the private equity giant Cerberus Capital Management in 2006 and Ally became completely independent after it was rescued from insolvency during the Obama administration’s 2009 auto bailout.
Under Carpenter, Ally has refocused on the automotive financing business in the U.S. but it is still sitting on billions of dollars of worthless mortgages that it acquired during the housing bubble that developed in the middle of the last decade.