GM Eying Return To Captive Finance?
Three years after spinning off GMAC, with which it pioneered captive auto financing, General Motors may be considering a return to in-house finance. Bloomberg BusinessWeek reports that:
GM may buy back the GMAC business, start a new finance unit or form a partnership with banks and other lenders, said the people, who asked not to be identified because details are private. Chief Executive Officer Ed Whitacre wants to form an in-house lender before selling shares in GM as soon as the fourth quarter, one person said.
GMAC has received $17.2b in TARP aid, but recently announced a$172m Q1 profit despite concern over its bailout in congress. GM’s previous experience with in-house lending has been decidedly mixed: though GMAC was long a cash-cow for the automaker, the easy financing cashflow is said to have enabled a culture of apathy towards product development. When the credit market collapsed, GMAC went down like a ton of bricks… and would have taken GM (even further) down with it, had Rick Wagoner not spun it off and sold it to keep the lights on a little longer. In the short term, a captive finance unit might help a GM IPO, but the potential for falling back into old bad habits can’t be ignored.
I fail to see why a return to captive auto finance necessarily signals a tendency to starving product development. While I do not disagree that in the recent past GM's product development was mediocre at best and finance was the cash cow, I find that situation arising more out of the intellectual laziness and complacency that ran rampant in the GM culture at the time. The fact that top brass within GM has been shaken up every couple months since Tex came in says that at the very least something has changed within the culture, and the shakeups speak to the fact that someone at the top wasn't complacent enough to handle the way things were going. The presence of captive finance does not in itself indicate poor product development is in the works. I'm sure most companies wouldn't mind having the finance cash flow in addition to operating profits on the manufactured goods they finance.
All of GM's competitors of note (Chrysler being the lone exception) have in house finance arms. A properly managed in house finance unit is one of the elements any successful automaker needs to have in the long run.
Susan Docherty for GMAC chief!
This will be a good move for GM. Making profits on the financing side will greatly help the IPO and profit potential.