US: GM to buy Ally's Europe, Latin America operations
General Motors' financing arm GM Financial has agreed to pay about US$4.2bn for the European and Latin American auto lending operations of Ally Financial [once GMAC] as it looks to extend its in-house financing to boost sales.
Ally, 74% owned by the US government, announced the plan to sell its international operations in May, in an effort to speed up the repayment of bailout funds. The company is focusing on its US business and has already sold operations in Canada and Mexico, Reuters reported.
GM said the purchase should increase its sales in Europe and Latin America, reflecting its experience in North America after it returned to in-house financing with the creation of GM Financial in 2010.
GM is also still partially owned by the U.S. government after a series of bailouts during the financial crisis and the companies also have an intertwined history: Ally is the former financing arm of GM and was once known as GMAC.
The automaker has been gradually rebuilding its finance operations since selling a controlling stake in GMAC to private equity firm Cerberus Capital Management in 2006.
"We're bringing those parts of Ally back into the family," said Dan Ammann, GM's chief financial officer, on a conference call that included Reuters.
Ammann said that GM had realised about 200,000 additional auto sales in North America since it created GM Financial.
Ammann said he expects to increase sales by varying degrees in other markets around the world, but he declined to detail any expected gains.
GM wanted to expand its in-house financing profile in order to deepen the relationship the company has with customers beyond the initial sale, where it had lost opportunities in recent years, he said.
Ammann said the deal had been approved by the GM board of directors but did not have to be approved by the US government.
The transaction includes operations in Brazil, Mexico, Colombia, Chile, Germany, Britain, France, Italy, Belgium, the Netherlands, Sweden, Switzerland and Austria. It also includes Ally's 40% interest in its Chinese joint venture GMAC-SAIC Automotive Finance Company, GM said.
GM Financial will work to expand its international finance operations into markets where Ally has pulled back, including Russia, Australia and Argentina, Ammann said. This expansion will be done "organically" and not by acquisitions, he said.
Ammann said there is no need to expand its finance activities in North America.
The deal is expected to add $300m to $400m to GM Financial's annual earnings before taxes.
GM expects to contribute about $2bn in cash to GM Financial to fund the purchase, the automaker said in a separate statement.
The automaker bought AmeriCredit Corp in 2010 and in August disclosed it was among the bidders for Ally's international operations. GM and Cerberus remain Ally shareholders.
Ally said its combined operations in Europe and Latin America represented about $16.1bn in assets at the end of the third quarter.
Of the $17bn it owes the US government, Ally has paid back US$5.8bn, including dividend payments.
The company is focusing on US auto lending and banking to turn its business around.