Struggling U.S. lender Ally Financial Inc. is auctioning off its Canadian banking division as part of the sale of more than $30-billion (U.S.) worth of international assets as it seeks to relieve mounting financial pressure.
Among the buyers now circling the assets is General Motors Co., which is said to want the business so that it can have a so-called captive finance arm to provide car loans to customers in Canada and elsewhere. In this country, GM competes with rivals such as Ford Motor Co. that already have their own financial units.
"We're interested in it, but we're not going to bleed to buy it," GM chief executive officer Dan Akerson said Monday in New York. "We're the natural buyer."
If GM were to pick up the Ally assets, it would bring the auto maker full circle in Canada. Ally was formerly owned by GM and was known as General Motors Acceptance Corp., but was sold off in 2006 to private equity giant Cerberus Capital Management LP as the Detroit company struggled to remain solvent.
Ally struggled to stabilize itself under Cerberus and was forced to seek a bailout from the U.S. government under the Troubled Asset Relief Program (TARP). Ally is still looking to pay off $17.2-billion of bailout funds it owes Washington. The U.S. Treasury department holds a 74-per-cent stake in the bank as a result of the bailout.
The lack of a financing arm is a disadvantage for GM's Canadian division in the auto market, said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. of Richmond Hill, Ont., so any move by its parent company to buy Ally's Canadian operations would give the Oshawa, Ont.-based auto maker a significant boost.
Captive finance arms help auto makers sell cars by giving them more control over the financing terms they can offer customers purchasing a vehicle. Before the financial crisis, the financial groups were also a significant source of profits for the major North American car makers.
While GM signalled Monday that it is likely not interested in acquiring Ally's U.S. auto lending business, since it has since teamed up with Wells Fargo & Co. in some parts of the U.S., the car maker is looking closely at Ally's assets in Canada and beyond. That could see the auto maker wade into a fire sale of assets that will likely spread beyond Canada and into Mexico, Europe and South America.
"Ally will explore strategic alternatives for all of its international operations, which includes auto finance, insurance, and banking and deposit operations in Canada, Mexico, Europe, the U.K., and South America," the bank said in regulatory filings on Monday.
"The international businesses represent strong franchises in each of the respective countries."
Ally became known in Canada with a series of provocative television advertisements depicting children who are duped out of offers for toys or prizes, to illustrate what it said were unfair terms offered by rival financial institutions in the fine print of deals.
Though it built up a banking arm in Canada, its $9-billion worth of Canadian assets are mostly auto loans. The assets could draw the attention of several suitors in Canada, since banking assets in the country rarely go up for grabs.
GM itself went into Chapter 11 bankruptcy protection in 2009, but its Canadian arm stayed out of creditor protection under the Companies' Creditors Arrangement Act.
With files from reporter Tara Perkins and Bloomberg News