DETROIT ? General Motors CEO Rick Wagoner believes the sale of controlling interest in GMAC to a group of investors led by Cerberus Capital Management will be good for both GM and its financing arm.
As a result of the agreement that was announced April 3rd, Wagoner said the automaker will receive $14 billion in cash over the next three years, including distributions from GMAC, with an estimated $10 billion by closing.. But still some auto and financial industry analysts believe Wagoner gave up to much and is not getting enough in return. Some say that he has sold GM?s ?crown jewel? and ?cash cow.?
Wagoner said nothing could be further from the truth. He argued that the transaction strengthens GMAC?s ability to support GM?s automotive operations, improves GMAC?s access to cost-effective funding, provides significant liquidity to GM and allows the automaker to continue participating in the profitability of GMAC.
?What we are doing is creating a different structure to craft even a brighter future for GMAC,? he explained. ?I believe that they (GMAC) are going to be much more productive than they have been in the past. And we are still going to participate in 49 percent of that. When you add it all up, I believe this is a very good deal.?
GMAC Chairman Eric Feldstein agrees with Wagoner. He said the agreement stipulates provisions that ?ensure we will continue to do business with General Motors for the next ten years, much like we have done business with GM over the past ten years,? said Feldstein. ?And I am highly confident that the relationship will remain mutually beneficial.?
Feinstein also said he expects to see strong growth in GMAC?s mortgage and insurance divisions. He explained that the stronger capital base that results from the sale should strengthen GMAC?s ability to finance auto purchases. But a lack of capital hasn?t been the only problem faced by GMAC?s auto lending division. Feldstein admitted that division has ?borne the brunt? of credit rating pressures.
?But I think much of that pressure is going to be alleviated as a result of this transaction,? he said. ?I think you will see us increase the asset base in auto financing, provide broader financing support to GM and augment the growth and profitability of that sector as well.?
Beyond the immediate cash infusion that GM will realize, Wagoner said the GMAC sale is part of his grand vision for the resurgence of General Motors.
“Over the last nine months we have been aggressively implementing our North American turnaround plan,” Wagoner said. “We’ve made some big moves, such as the health-care agreement with the United Auto Workers union; the manufacturing capacity plan; changes to our salaried health-care and pension plans; an accelerated attrition plan for hourly employees; and a complete overhaul of our marketing strategy. These bold initiatives are designed to immediately improve our competitiveness and position GM for long-term success and today’s transition is a further step in that direction.”
The GM Board of Directors approved the sale in a special meeting the day before it was announced. A GM spokesman said that decision followed extensive consideration of the transaction and alternative strategies over the past several months. Speaking for the GM Board, Presiding Director George Fisher said that the GMAC transaction ?along with the other progress GM has been making on its turnaround plan, is an important milestone. While there is still much work to be done, the GM Board has great confidence in Rick Wagoner, his management team and the plan they are implementing to restore the company to profitability.”
The transaction is subject to a number of U.S. and international regulatory and other approvals. The companies expect to close the transaction in the fourth quarter of 2006.
This story was written by Mitechnews.Com staff writer Rod Kackley, who covers Southeast Michigan. If you have story ideas for Kackley, you can email him at [email protected]
