A European Ally

GM purchases portion of its former auto-lending outfit

• November 29, 2012 5:00 am


General Motors (GM) last week started buying out Ally Bank’s auto lending operations in an effort to reverse months of lagging growth.

Ally Financial Inc., formerly known as GMAC, is GM’s former auto-lending arm. Although it split from the automaker in 2006, it still garnered $17 billion in taxpayer money during the auto bailout.

GM announced on November 21 its repurchase the bank’s lending operations in Europe and Latin America at a cost of $4.2 billion. Taxpayers own about 75 percent of Ally, which has only repaid $2.5 billion of its bailout. GM still owes U.S. taxpayers nearly half of its $50 billion bailout.

Industry insiders criticized the Treasury Department for not placing Ally in bankruptcy or selling it off before the election, which would have forced the administration to acknowledge the impossibility of fully recovering bailout money.

Christopher Whalen, cofounder of Institutional Risk Analytics, told the Washington Free Beacon in April that the Obama administration was motivated by politics rather than the responsible stewardship of taxpayer dollars.

"Geithner and the rest of Treasury doesn’t want to admit that it is a mess and they’ve been lying to us for three years," Whalen said in April. "They’re waiting until after the election [to sell the bank]."

GM announced the successful buyout two weeks after the Nov. 6 election. The deal has helped boost confidence in the company on Wall Street. Fitch Ratings upgraded GM’s BB issuer default rating to a positive outlook on Wednesday.

Ally’s spinoff from GM had taken a financial toll on the automaker. While every other car company was able to use in-house lending, GM was forced to split its loan profits with Ally.

The profit splitting along with a sluggish European market has sent GM’s stock tumbling by more than 35 percent since January 2011. Its stock price, which closed at $25.28 on Wednesday, would have to more than double in value to fully pay back taxpayers.

The Ally buyout is part of GM’s push to stabilize its overseas operations. GM has tried to increase its presence on European soil in recent months. The company signed a $600 million endorsement deal in July with English soccer team Manchester United, the most expensive sponsorship in history.

Ally has been the worst performing bailout recipient in the wake of the global financial crisis. The firm has failed multiple stress tests administered by the Treasury Department.

The government hoped to spin off the distressed bank, but transitioned toward bankruptcy after the auto-lender’s books revealed that it was recovering from its massive subprime home loan losses by issuing numerous subprime auto loans.

The bank’s mortgage unit entered bankruptcy in May.