Monday, December 04, 2006

GM sells majority of GMAC

Friday, December 01, 2006
GM sells majority of GMAC
Automaker completes $14 billion sale of 51% of its finance unit to private investors.
Jeff Green and Greg Bensinger / Bloomberg News

General Motors Corp. sold a majority of its General Motors Acceptance Corp. finance unit to a group led by Cerberus Capital Management LP on Thursday, raising $7.4 billion in cash and completing a transaction that began in April.

GMAC will be able to borrow at a lower cost by separating from its parent, cutting GM's cost to sell cars to customers. The sale of a 51 percent stake meets a goal of CEO Rick Wagoner as he works to recover from last year's $10.6 billion loss.

GM will take a $2.7 billion distribution from GMAC as part of the transaction, meaning it will get a total of $10.1 billion for the stake this year. GM will get another $4 billion over the next three years, the automaker said in a statement Thursday.

"We're delighted they got this deal closed and it's great to see everything was essentially as advertised," Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. said Thursday. "The $14 billion will definitely be helpful."

Wagoner sought the GMAC stake sale after credit ratings for the automaker and finance unit were cut below investment grade last year by Standard & Poor's, Moody's Investors Service and Fitch Ratings.

The ratings companies have given GMAC a higher credit rating than GM since late last year on the expectation of a sale. A preliminary agreement was announced April 3.

GM has made more money from auto loans and mortgages sold by the finance unit than from building cars and trucks since 2002.

Last year, GM's auto unit lost $12.9 billion and GMAC earned $2.4 billion.

GM will use part of the proceeds to fund early retirement and buyout incentives accepted by 34,400 union members this year. The company is trimming jobs and plans to close 12 North American locations by 2008 as its U.S. sales fall and its market share hovers at an 80-year low.

"It isn't good that GM had to sell GMAC in the first place," Hastings said.

Shares of GM fell 27 cents to close at $29.23 Thursday on the New York Stock Exchange, the lowest close in three months. They were pushed down earlier in the day by an announcement that shareholder Kirk Kerkorian cut his investment in GM by 14 million shares, the second time in two weeks he trimmed his stake.

GMAC's 8 percent note due November 2031 rose to its highest price in at least two years. The debt gained 1.88 cents to 112.63 cents on the dollar, yielding 6.9 percent, according to Trace, the NASD's bond-price reporting service.

Credit ratings grow

S&P this week increased GMAC's credit rating to BB+, one step below investment grade, from BB. The New York-based ratings company also said it upgraded GMAC's Residential Capital home- mortgage subsidiary to BBB from BBB-. Fitch Thursday upgraded GMAC to BB+, matching the S&P rating. Moody's rates the new GMAC Ba1, one step below investment grade.

The group buying the GMAC stake includes Cerberus, Citigroup Inc., Aozora Bank Ltd. and a subsidiary of PNC Finance Services Group Inc.

Aozora said in a filing in Tokyo that it will invest $500 million in GMAC.

The reorganized GMAC will have a 13-member board controlled by the Cerberus consortium. It includes Wagoner, GM Chief Financial Officer Fritz Henderson, North American marketing boss Mark LaNeve and Treasurer Walter Borst.

Cerberus Chief Operating Officer Mark Neporent and Morgan Stanley Co-President Bob Scully are also among new members of the board, chaired by Ezra Merkin, a managing partner with Gabriel Capital Group.

GMAC's existing management team will remain in place. The company is led by Chief Executive Officer Eric Feldstein, President William Muir, and Chief Financial Officer Sanjiv Khattri.

Goals for GMAC

GMAC's short-term goal is to bolster its case for higher debt ratings, Khattri said. Longer term, GMAC will work to lessen its reliance on GM, he added.

"We need to show that the right things are happening," he said.

More than 90 percent of GMAC's auto finance business is for GM brands with GM dealers, he said. About half of those dealers have non-GM brands, which is one likely area of early expansion, he said. The finance company will also try to add more used-car dealerships, Khattri said.

GMAC will also continue its geographic expansion, growing in India, China, Brazil, Russia and other emerging markets where economies are growing faster than the U.S., he said.

© Copyright 2006 The Detroit News. All rights reserved.


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