AP source: GM wants to re-enter auto financing

[May 12, 2010]  DETROIT (AP) -- General Motors Co. executives want their own auto-financing arm so they can offer more competitive lease and loan deals, according to a person briefed on their plans.

The executives want to buy back the auto financing business from the former GMAC Financial Services or start their own operations, said the person, who asked not to be identified because the plans have not been made public.

A top GM executive has told dealers about the plans, the person said.

GM sold a 51 percent stake in GMAC Financial Services in 2006 when it was starved for cash. The new owners, led by private equity firm Cerberus Capital Management LP, ran into trouble in 2008 with bad mortgage loans and had to be bailed out by the federal government, which now owns 56 percent of the company.

Earlier this month, GMAC changed its name to Ally Financial.

GM dealers say that since GMAC is responsible for making its bottom line look good, it is less likely to lose money by offering to finance sweet lease deals or zero-percent financing. A GM-owned auto financing business would be more likely to "take a bullet" for the company to sell more cars and trucks, the person said.

Competitors, such as Ford Motor Co. or Toyota Motor Corp., control their own financing arms.

GM spokesman Tom Wilkinson said Tuesday that the company would not comment on speculation.

He said GM currently has a variety of financing options with Ally Financial and through agreements with banks and credit unions.

GM, which is 61 percent owned by the taxpayers and has received about $50 billion in U.S. government aid, plans to report earnings next week. Executives including CEO Ed Whitacre have been upbeat about the results and have implied that the company will make a profit.

A profitable quarter coupled with a slowly rebounding U.S. auto market could mean that GM would have the cash to make an acquisition or start its own business.

GM executives have said the company is taking in more cash than expected from rising prices for its newly redesigned vehicles, including the Chevrolet Equinox crossover vehicle, Buick LaCrosse luxury sedan and Chevrolet Malibu midsize sedan.

For the period from July 10, when GM emerged from bankruptcy protection after shedding billions in debt, through Dec. 31, the automaker lost $4.3 billion.

GMAC has received $16.3 billion in loans from the federal government, which views the lender as crucial to the success of GM and Chrysler Group LLC. GMAC is the preferred lender for both bailed-out automakers.

But a government watchdog earlier this year criticized the GMAC bailout, calling it "baffling" and saying the government stands to lose billions of dollars.

Earlier this month, GMAC Financial Services posted its first quarterly profit in more than a year.

The Detroit-based company reported first-quarter earnings of $162 million compared with a year-ago loss of $675 million.

A spokeswoman for Ally Financial, Gina Proia, said the company sees its current incarnation as a bank holding company as having advantages over a finance company owned by an automaker, including a more stable and lower cost of funds.

[Associated Press; By TOM KRISHER]

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