General Motors Corp. yesterday sold a controlling interest in its GMAC finance unit -- a rare profit center in the troubled company -- to a group of private investors for $14 billion.
GM said it made the move to raise the needed cash to fuel a revival of its North American division. The sale provides a cash cushion for GM as it tackles the difficult task of building cars and trucks Americans want to buy.
The goal remains elusive. GM's sales in March declined 14.6 percent from March a year ago, according to Autodata Corp. At the same time, many foreign automakers' sales grew last month.
GM chief executive Rick Wagoner called the GMAC sale a "milestone" in the company's hopes for a turnaround. The sale follows several other recent high-impact moves aimed at paring back GM's sprawling global automotive operations, beating down labor costs and shoring up the balance sheet.
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GM lost $10.6 billion last year and faces the prospect of a costly fight between Delphi Corp., GM's top auto parts supplier, and the United Auto Workers union. GMAC has also been struggling to operate as GM's credit rating has spiraled deeper into junk status.
The investor group for GMAC is led by Cerberus Capital Management LP and includes Citigroup Inc. and Aozora Bank Ltd. After the sale, GM will retain a 49 percent stake in the unit and still will derive a share of its earnings. In a separate deal, GM last week sold a 78 percent stake in GMAC's corporate mortgage division for $8.8 billion.
GMAC is a wholly owned subsidiary of GM. The automaker created GMAC in 1919 to provide car dealers with financing to buy vehicles in large quantities as well as give customers easier access to auto loans. Over time, as GM grew into an automotive giant, GMAC grew, too. GMAC currently has $320 billion in assets and offices in more than 40 countries.
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As part of the deal, the automaker said GM and GMAC will enter into a number of 10-year agreements under which GMAC will continue to support GM's automotive operations, GM said. The automaker has worked hand-in-hand with GMAC over the years when it has needed to act aggressively to discount cars and trucks to clear inventories.
Financial analysts say they don't expect the nature of that collaboration to change. GM has tried to pull back from that strategy but has had trouble making it work.
Last month, GM announced a sweeping buyout plan designed to clear its employment ranks of 30,000 high-wage union positions. In the past six months, GM has come up with plans to hold down ballooning costs for health care, trimmed retirement and pension benefits, and begun laying off engineers and other white-collar workers. GM also halved its stockholder dividend and cut pay for executives, including Wagoner's salary.
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Separately yesterday, Fritz Henderson, GM's newly installed chief financial officer, said the automaker is stepping up efforts to bail out Delphi, the bankrupt auto supplier and former GM auto parts division. Delphi, which is operating under bankruptcy court protection, asked the court Friday to void its labor contracts. The action was denounced by the United Auto Workers, which broke off talks with Delphi over wage and benefit concessions. Wagoner, who has presided over GM for six years without a major labor confrontation, said working out a solution to the Delphi problem is an "important piece of the puzzle."
Wagoner added, "If we can work with the union better than fight with them, it's better."
GM said yesterday's move to divest a 51 percent stake in GMAC was necessary to separate the finance unit's credit ratings from the automaker's own ratings. GM's ratings have fallen deeper into junk territory because of the company's sluggish sales performance.
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Financial analysts say it is absolutely critical that the financing arm get a stronger rating. One of the ways a financing company such as GMAC is profitable is by borrowing money from banks at low rates and then lending it out to customers at higher rates.
GMAC's net income last year totaled just under $2.4 billion, which flowed back into GM. Of the total, $666 million was generated by auto financing, GMAC's mortgage units brought in $1.3 billion, and GMAC's insurance business accounted for $417 million.
Cerberus, based in New York City, has $18 billion in assets under management for individual and institutional investors, including state and corporate pension funds, insurance companies, foundations and endowments.
GM announced its intention to sell GMAC in October. It expects the deal to close in the fourth quarter. GM said the transaction is subject to a number of regulatory approvals in Washington and in other countries.
