General Motors is considering returning to the auto loan business, and is exploring buying back part of its former GMAC auto finance arm, which was renamed Ally Financial Inc. Monday, The Detroit News reports.
The U.S. government currently owns 61 percent of GM and 56.3 percent of GMAC/Ally. If GM decides to buy part of the former GMAC, the Treasury Department would have to approve it.
Ally not only gives consumer auto loans and dealer floor plan financing to GM customers and dealers, but also finances Chrysler’s dealers and customers. Chrysler Financial is no longer funding consumer auto loans and dealer floor plan financing.
In March, the Congressional Oversight Panel said the Treasury Department should consider recombining GM and the former GMAC. This "would restore GM’s financing operations to the model generally shared by other automotive manufacturers."
Having an effective auto finance company is critical for the health of an automaker, says Phil LeBeau of CNBC. GM and Chrysler dealers are currently financing deals through Ally Financial without their own auto finance arm. But having a captive auto finance company makes the automaker more attractive for an initial public offering of stock.
LeBeau points out that large investors would see GM as more valuable with a well-run captive finance arm. If GM is able to run a successful auto lending operation, it could do very well.
Ally logo via Ally Financial Inc.