Categorized | Auto

Ally should split and sell to GM, Treasury recommends

Ally Financial sees itself as fulfilling its mission to shareholders by moving toward an initial public offering. But the U.S. Treasury sees only dark clouds on that horizon. It has advised that Ally split up and sell itself back to General Motors, its previous owner.

Ally executives not pleased

GMAC was the name of Ally Financial when it was owned by General Motors. Ally executives were hoping for a really good IPO, which is why they would be disappointed if ownership was given back to GM.

Stress test outcomes have shown just how unstable Ally Financial really is, according to the Federal Reserve. The Treasury claims that Ally cannot possibly have a profitable IPO considering the high cost of capital Ally has and a possible bankruptcy for the mortgage unit.

Treasury’s idea for business

Reports indicate that if the recommendation of the U.S. Treasury is followed, Ally Financial will be split into at least two pieces. The first would be Ally’s auto finance arm, which remains one of the largest in the United States. The other would be Ally’s online banking operation, which logged nearly $28 billion in retail deposits in 2011. Elliott Management Corp., one of Ally’s major investors, concurs with the recommendation of the Treasury, notes Bloomberg News.

Ally looks to fulfill its mission

Automotive News was able to speak with Ally spokeswoman Gina Proia. She said the company intends to repay shareholders, its mission.

Technically, U.S. working class individuals own about 74 percent of Ally Financial. During the automotive bailouts of 2008 and 2009, it was helped out.

Last year

Ally Financial was considering a buyout from Dominion Bank, Canada’s second-largest lender, and GM last year. It also almost went public during the year. Clearly, neither of those things happened.

Since the bailout, Ally paid $5.4 billion back to the government already, and Ally has financed 6.7 million General Motor and Chrysler automobiles since 2009. Proia explained that 2.4 million of those vehicles were for customer auto financing.

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