General Motors' financing arm GM Financial has agreed to pay about $4.2 billion (£2.6 billion) for the European and Latin American auto lending operations of Ally Financial, as it looks to extend its in-house financing to boost sales.
Ally, which is 74 per cent owned by the US government, announced the plan to sell its international operations in May, in an effort to speed up the repayment of bailout funds. The company is focusing on its US business and has already sold operations in Canada and Mexico.
GM said the purchase should increase its sales in Europe and Latin America, reflecting its experience in North America after it returned to in-house financing with the creation of GM Financial in 2010.
GM is also still partially owned by the US government after a series of bailouts during the financial crisis and the companies also have an intertwined history: Ally is the former financing arm of GM and was once known as GMAC.
The automaker has been gradually rebuilding its finance operations since selling a controlling stake in GMAC to private equity firm Cerberus Capital Management in 2006.
"We're bringing those parts of Ally back into the family," said Dan Ammann, GM's chief financial officer, on a conference call with reporters.
Ammann said that GM has realised about 200,000 additional auto sales in North America since it created GM Financial. In-house financing helps auto sales by allowing carmakers to subsidise auto loans, leases and dealership upgrades.
Ammann said he expects to increase sales by varying degrees in other markets around the world, but he declined to detail any expected gains. GM wanted to expand its in-house financing profile in order to deepen the relationship the company has with customers beyond the initial sale, where it had lost opportunities in recent years, he said.
Ammann said the deal had been approved by the GM board of directors but did not have to be approved by the US government.
The transaction includes operations in Brazil, Mexico, Colombia, Chile, Germany, Britain, France, Italy, Belgium, the Netherlands, Sweden, Switzerland and Austria. It also includes Ally's 40 per cent interest in its Chinese joint venture GMAC-SAIC Automotive Finance Company, GM said.
GM Financial will work to expand its international finance operations into markets where Ally has pulled back, including Russia, Australia and Argentina, Ammann said. This expansion will be done "organically" and not by acquisitions, he said.
Ammann said there is no need to expand its finance activities in North America.
The deal is expected to add $300 million to $400 million to GM Financial's annual earnings before taxes.
GM expects to contribute about $2 billion in cash to GM Financial to fund the purchase, the automaker said in a separate statement.
The US automaker bought AmeriCredit Corp in 2010 and in August disclosed it was among the bidders for Ally's international operations. GM and Cerberus remain Ally shareholders.
Ally said its combined operations in Europe and Latin America represented about $16.1 billion in assets at the end of the third quarter.
Of the $17 billion it owes the US government, Ally has paid back $5.8 billion, including dividend payments.
The company is focusing on US auto lending and banking to turn its business around. In May, its Residential Capital mortgage unit filed for bankruptcy, and on Wednesday a bankruptcy court judge approved the sale of its mortgage operations to Ocwen Financial Corp and Walter Investment Management Corp for $3 billion.
ResCap is also selling a loan portfolio to Warren Buffett's Berkshire Hathaway Inc for $1.5 billion.
Ally agreed to sell its Canadian auto finance and deposit business to Royal Bank of Canada for $4.1 billion and its Mexican insurance unit to ACE Ltd for $865 million last month.
Bank of America Merrill Lynch and Barclays advised GM. Citigroup and Evercore Partners advised Ally.