GM Said to Opt Against Credit Unit, May Team Up With Banks
By David Welch - Jul 9, 2010
General Motors Co. has decided against creating its own finance unit and is instead talking with banks including JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. about bolstering its lending capabilities, people with direct knowledge of the decision said.
The banks would write loans and leases on cars, helping to spur sales, said four people with knowledge of the situation who asked not to be named because the discussions are private.
Chief Executive Officer Ed Whitacre aimed to get the automaker back into financing before its planned initial public offering this year, people familiar with the situation have said. The company considered buying back its former lending arm, GMAC LLC, starting a bank or working with outside lenders to offer customers more financing options, said three people with knowledge of the discussions. Buying GMAC, now called Ally Financial Inc., or starting a new, in-house banking unit proved too difficult at this point, they said.
“They have to make sure they cover all of the credit tiers,” said Maryann Keller, president of consultant Maryann Keller & Associates in Stamford, Connecticut. “They can’t reacquire GMAC because its only basis for cheap capital is that they own a bank. GM can’t legally own a bank.”
Selim Bingol, a GM spokesman, declined to comment. An Ally spokeswoman, Gina Proia, declined to comment.
GM, based in Detroit, is looking for other banks to boost its subprime-lending and leasing capabilities, the people said. GM has missed out on some sales because GMAC, its primary retail lender, doesn’t lend to subprime borrowers, Mark Reuss, president of GM North America, has said.
The carmaker works with Fort Worth, Texas-based AmeriCredit Corp. for subprime lending and Minneapolis-based U.S. Bancorp for leasing deals. GM wants more lenders to compete for the loans to lure customers with more options and better rates, the people said.
GM executives had debated whether the company should own a lender, with some arguing that the automaker’s junk credit rating would make it costly to raise capital for loans, said three people.
Chief Financial Officer Chris Liddell said last month that the company will consider a variety of sources for consumer car loans rather than carrying the assets and liabilities of a lending business on its books.
The automaker could enlist outside banks to make car loans or write leases for consumers while branding the financing under the GM name, Keller said.
In the longer term, GM may still have a chance of acquiring GMAC, two of the people said. For now, GM doesn’t see a way to do the deal, doesn’t want GMAC’s ResCap mortgage unit, and GMAC also wasn’t interested in selling, they said.
The U.S. Treasury Department owns 61 percent of GM and 56 percent of GMAC. While some Treasury officials favor merging the two, the government doesn’t want to get involved in forcing a deal, the people said.