General Motors Co. is weighing an attempt to buy back its old auto-lending arm or start a new finance company in a bid to become more competitive and bolster the company's appeal ahead of an initial public stock offering, said two people familiar with the situation.
GM sold majority control of its lending arm, GMAC LLC, in 2006, leaving the car company at what many see as a competitive disadvantage to rival auto makers with their own in-house lenders.
A return to the car-lending business could give GM more control over availability and rates of loans to consumers and dealers. It also could make the company more attractive to investors as the auto-lending business historically is a profitable one.
GMAC, which recently renamed itself Ally Bank, made $653 million on its North American automotive operations in 2010's first quarter.
GM is working toward becoming public again, the first step in allowing the U.S. government to reduce its 61% stake in the company. The car maker last month repaid a $6.7 billion federal loan, but the rest of the government's $50 billion investment won't be repaid until the U.S. Treasury can sell its shares.
The car maker would be interested mainly in acquiring Ally's auto-finance business and not the company's troubled mortgage-lending unit. Alternatively, GM could attempt to partner with other lenders or launch its own finance unit.
Either option is flush with complications. GMAC in 2008 became a bank holding company in a move to gain access to funds at lower rates. Unwinding the car-loan business from its bank and home-finance sides could be difficult, and the loss of auto lending would be a financial blow.
An Ally spokesman couldn't immediately be reached for comment.
A new, in-house lender could give GM another method to drive sales growth, a prime mandate of Chairman Edward E. Whitacre Jr. But GM, which had been largely cut off from access to capital amid its bankruptcy and restructuring last year, would need to come up with funding for the move and, likely, finance partners.
GM is in the early stages of considering car-finance options, the people familiar with the situation said. Bloomberg News earlier reported the company's deliberations.
GMAC cracked down on auto lending amid the economic meltdown in 2008, a move that hobbled GM and preceded the auto maker's decent into bankruptcy. Ford Motor Co. and Toyota Motor Corp., each with its own captive lender, were able to offer cheaper loans and leases to car buyers during the downturn.
The availability of financing for GM customers improved after GMAC, through the bailout of the U.S. banking industry, received $16.3 billion in U.S. government loans. GMAC played a key role in helping stabilize GM and rival Chrysler Group LLC, which also relies on GMAC for customer financing.
GM has said it would launch an initial public offering as soon as this year, depending on market conditions and the company's financial position. GM in the next few days is expected to announce a solid first-quarter financial performance.
