GM buying Ally assets in Europe and Latin America

Associated Press Modified: November 21, 2012 at 5:00 pm •  Published: November 21, 2012
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DETROIT (AP) — General Motors said Wednesday that it will buy Ally Financial's operations in Europe, China and Latin America as it tries to build a global finance unit to make low-interest car loans and boost sales.

The auto giant's U.S. loan business, GM Financial, will pay $4.25 billion for the Ally assets, helping GM to better compete in markets where other automakers already have their own loan operations. Automakers with their own finance arms often subsidize loans and leases to boost sales.

The deal, which still must be approved by regulators, is expected to close in stages next year. Ally will get a $550 million premium over the book value of the assets, which was $3.7 billion in the third quarter, Ally said in a news release.

Ally, which was GM's financial arm until it was taken over by the U.S. government in the 2008 banking industry meltdown, is selling off assets to raise money to repay the government for a $17.2 billion bailout. So far Ally has repaid $5.8 billion, leaving a balance of $11.4 billion. The company used to be called GMAC Financial Services.

The move will help GM by restoring a unit that once was highly profitable before the meltdown, said Argus Research analyst Bill Selesky. It also will help GM grow in countries in which the middle class is expanding, he said.

"They believe that future growth will largely be determined by growth in emerging-market economies. They believe this is where the future of auto lending is going, to higher-growth geographies," he said.

GM will give $2 billion to GM Financial to make the purchase, the automaker said in a statement. The deal includes Ally's operations in Brazil, Mexico, Colombia, Chile, Germany, the United Kingdom, France, Italy, Belgium, the Netherlands, Sweden, Switzerland and Austria. It also includes Ally's 40 percent interest in a Chinese joint venture auto financing company.

GM Financial's assets will double to about $33 billion, and liabilities including debt will rise to $27 billion from about $12 billion today, GM said in the statement.

The move comes at a time when GM is rolling out many new models across the globe, and the increased financing ability should raise sales, Chief Financial Officer Dan Ammann said. It also will help end a disadvantage that GM had compared with its competition. GM, he said, was 10 to 15 percent behind competitors in the number of sales it was able to finance overseas.

"If we're successful in closing that, it's going to result in a significant increase in sales," he said during a conference call.

GM is happy with loans and leases made by GM Financial and would not be interested in acquiring Ally's North American businesses, Ammann said. GM bought Texas-based Americredit in 2010 for $3.5 billion and renamed it GM Financial.