General Motors Company (NYSE:GM) is selling its remaining stake in Ally Financial Inc (NYSE:GOM), once the auto giant’s in-house lending arm known as GMAC, for an estimated $900 million, reports Dana Mattioli and Jeff Bennett for The Wall Street Journal. Ally Financial has repaid about two-thirds of the $17.2 billion bailout it received during the crisis, but the US government is still the company’s majority shareholder.
General Motors Company (NYSE:GM) first sold a 51% stake in Ally Financial Inc (NYSE:GOM) to a group of investors including Cerberus Capital Management LP for $7.5 billion in 2006. GM let its share fall to just 9.9% and Cerberus owns 8.7% of the investment company.
General Motors moving back to in-house financing
The latest move isn’t a great surprise, as General Motors Company (NYSE:GM) has been working to bring its financing back in-house for the last year. When Ally put its international businesses up for sale to deal with its US debt and legal issues stemming from its involvement in subprime mortgages, General Motors bought its operations in Europe, Latin America, and China for $4.2 billion.
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General Motors Company (NYSE:GM)’s captive financing arm, GMF, gives the company more control over the offers that it makes to consumers. For example, right now GM doesn’t have the capability to lease cars in Europe, putting it at a big disadvantage, but analysts believe that GMF is working to fix that. Having its own financing arm also makes it easier for GM to move aggressively into new markets, driving sales for the auto business. General Motors’ cost of offering low APR loans should also decline.
All told, US taxpayers to lose about $10 billion
Like Ally, General Motors Company (NYSE:GM) received a large bailout from the federal government during the financial crisis, and the US government still holds a stake in the company, though the US Treasury has announced plans to sell that stake by the end of the year, ahead of most expectations. The exact timetable depends on market conditions, but by setting such a close deadline, it seems like the US government will end up losing about $10 billion on the money it lent to General Motors. There have been suggestions that a private deal or an IPO could be held to help the government get rid of its remaining stake in Ally sometime next year.