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Saturday, March 31, 2012

U.S. suggests Ally breakup, wants GM to buy captive finance unit

NEW YORK (Bloomberg) -- The U.S. Treasury, which put $17.2 billion into a bailout of Ally Financial Inc., has indicated it would prefer a breakup and sale of the lender -- including selling the company's captive finance auto business back to General Motors, its original owner.

People familiar with the matter told Bloomberg the Treasury wants to make such moves because it no longer believes an initial public offering of Ally stock would succeed.

General Motors previously owned Ally when it was known as GMAC. GM spokesman Jim Cain declined to comment on the report.

Treasury officials are telling Ally executives, directors and financial advisers that an IPO is unlikely soon because of the company's high cost of capital relative to other banks, the potential bankruptcy of a mortgage unit, and its recent performance in Federal Reserve stress tests, said the people, who asked not to be identified because the talks are private.

The Treasury instead is pushing for Ally to split into at least two pieces, the people said. One part would be Ally's auto-finance unit, one of the largest in the U.S., and the other would be its online banking business, which had almost $28 billion in retail deposits at year-end. Ally shareholder Elliott Management Corp. also recommends a sale, according to a letter sent to the board by Elliott and obtained by Bloomberg News.

Ally CEO Michael Carpenter and its board have resisted the Treasury's call for a split, the people said, adding that the department is reluctant to press Carpenter too hard for a sale out of concern about appearing as a heavy-handed owner. The Treasury owns 74 percent of Ally.

"We're supportive of management and continue to work closely with them," the Treasury said in an e-mailed statement. Matt Anderson, a department spokesman, declined to comment on Treasury's view of the IPO or the success of any potential sale.

'Fulfill our mission'

"Every action the company has taken and contemplated has been with the objective to fulfill our mission to support the auto recovery and fully repay the taxpayer's investment," Gina Proia, an Ally spokeswoman, said in an e-mailed statement. "This is what will guide our decisions going forward."

While no official Ally sales process has begun, the Treasury's views have been shared with Ally senior executives, directors and a number of the financial and legal advisers brought on to help pursue an IPO, the people said.

Ally was found to have some of the lowest capital ratios among 19 lenders in Fed banking stress tests released March 13.

Ally is likely to put Residential Capital mortgage unit into bankruptcy in the next few weeks and sell some assets in a court-supervised sale, people familiar with the matter said last month. The firm also may lose its preferred auto-lender agreement with automaker Chrysler Group, which is seeking out banks like Wells Fargo & Co. and Santander Holdings USA Inc. to potentially replace Ally, people with knowledge of the matter said last month.

GM as buyer

The Treasury has suggested Ally consider selling its captive-finance business to GM, said two of these people, with the rest sold to a traditional bank. GM and other companies aren't interested in buying any of Ally until it resolves ResCap's status, said another person familiar with the matter.

The U.S. determined that Ally was crucial to the survival of the auto industry during the financial crisis in 2008 and 2009 and provided multiple bailouts in return for a 74 percent stake.

Last year, when Ally was close to a public offering, it considered a joint bid from GM and Toronto-Dominion Bank, Canada's second-largest lender, until those discussions fizzled, a person familiar with the matter said last month.

Ally has financed about 6.7 million GM or Chrysler vehicles for dealers since 2009 and another 2.4 million for consumers, Proia said. Ally has so far paid $5.4 billion to the Treasury.

Ally executives depart

Many of the bankers Ally brought on to prepare for an IPO have been told an offering is unlikely, said two people familiar with the matter. Some of Ally's top people working on the IPO have said they'll leave.

Corey Pinkston, head of corporate debt and equity for Ally since January 2009, has announced his intentions to depart, Proia said in a separate telephone interview. Laura Hall, who works with Pinkston, will also be leaving.

Both executives still work at the company and have no specific departure date, Proia said. Jeff Brown, the senior executive vice president in charge of finance and corporate planning, will add Pinkston's duties to his current role.

Elliott Management, which owns 2.3 percent of Ally, is also pressing Carpenter, the board and their advisers to explore a sale. Its letter, and an accompanying plan, also urged Carpenter not to put ResCap into bankruptcy, saying the process will mean "radical value destruction," drag out for 12 to 18 months, and trigger billions of dollars in so-called put-back claims, where holders of mortgage-backed securities issued by ResCap try to force the company to buy back soured loans backing the bonds.

Elliott's alternative

The litigation would push up Ally's cost of funding and hurt its competitive position, the letter said.

The plan urges Carpenter to sell Ally Bank to another lender and says it could fetch $13.1 billion to $16.3 billion. The origination and loan portfolio, which provides loan and insurance to more than 18,000 car dealers, could then be sold for $10 billion to $12.5 billion, according to the document.

A transaction "in which ResCap is restructured out of court and Ally is sold to a strategic financial institution is the best option," the letter said. "This will create significant value for all constituents at a dramatically lower all-in cost with considerably less uncertainty and execution risk."

The plan suggests Ally should instead exchange ResCap debt for Ally debt and pay off the smaller number of put-back claims through monthly cash flow. A number of the put-back claims would go away in 2013 or 2014 due to a statute of limitations on such claims, according to the plan.

Carpenter, the Ally board and his advisers haven't responded to the proposal from Elliott, according to a person familiar with the matter.

"The fact remains that addressing the risks in the mortgage business is the key to successfully pursing any and all future strategies," Proia said in the e-mailed statement. She declined to comment on whether the company has seen the plan.

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NADA UCG: Wholesale Prices Remain Solid, Effects of Rising Gas Prices Evident

In the first installment of exclusive AuctionNet Wholesale Price and Forecast Data provided by NADA Used Car Guide to Auto Remarketing, wholesale prices remain consistent, but the effect of rising gas prices is “undeniably evident,” the organization stressed.

And some segments, though not normally thought of as gas sippers, are also benefiting from the spring season.

Mid-size vans continue to “benefit not only from lift normally associated with the spring selling season, but also from an ongoing reduction in supply and the versatility (capacity and relative fuel economy) the segment has to offer,” NADA Used Car Guide explained.

The two-week average rate of growth in wholesale prices for this segment led all other segments by 3.8 percent, according to the organization’s AuctionNet data.

And NADA UCG expects wholesale prices for this segment to rise by 3 percent, or $475, over the course of this week.

Following closely behind, the rate of growth for compact car and mid-size car segments has made significant jumps, as well, perhaps reflecting the recent climb in gas prices.

The compact car segment wholesale prices jumped 3.7 percent, and the mid-size car segment saw a rise of 3.2 percent.

“Price growth for the current week is  expected to slow somewhat to 2.5 percent for the compact car segment and 1.6 percent for the mid-size car segment,” NADA Used Car Guide further explained.

On the other hand, indicative of the season change and fuel-price trend, large pickup, large SUV and luxury utility prices have fallen behind other segments.

And NADA UCG analysts expect prices for large pickups and luxury utilities to stay relatively flat.

But large SUVs are expected to see more of a change, falling by 2.3 percent, or an average of $600, the organization concluded.

4- and 2-week AuctionNet wholesale average prices are created by collecting all AuctionNet records for vehicles up to five years of age for a specified period of time.  Prices are then adjusted for changes in mileage and mix.

Current week prices are forecasted based on NADA's proprietary used vehicle value model which includes assumptions for new vehicle prices, used vehicle supply, gasoline prices and other economic factors.

Average AuctionNet® Wholesale Price

Editors Note: Auto Remarketing will be receiving these AuctionNet data updates weekly. Keep an eye out for the next installment in your Auto Remarketing Today e-newsletter.


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Edmunds.com: Loosening Credit and Rising Gas Prices Bring Shoppers Back to Lots

As credit loosens, confidence in the economy improves and gas prices climb, consumers are heading back to the lots, according to the sales forecast from Edmunds.com. 

As these factors drive rising auto sales, analysts contend that after “delaying purchases” over the last couple of years, shoppers will “march” back to the lots, contributing to what Edmunds.com has predicted will be 1,451,956 new-car sales this month.

This translates into a SAAR of 14.9 million units and would mark a 26.4-percent increase from February and a 16.5-percent increase year-over-year.

And an estimated 3.64 million used cars will be sold in March, for a SAAR of 38.3 million units (compared to 3.55 million – or a SAAR of 39.2 million – used-car sales in February), according to the company's data.

“After delaying purchases over the last couple of years, consumers are eager to jump into the new car market,” said Jessica Caldwell, senior analyst at Edmunds.com.

“Vehicle trade-in rates have achieved sustained highs in recent months, which suggests that consumers have decided that they’ve held on to their cars for too long. And with the average credit score for new car buyers at its lowest level since the first half of 2008, the market is clearly becoming a friendlier place for all buyers,” she continued.

Breaking the data down further, Edmunds.com estimates that retail SAAR will come in at 11.8 million vehicles in March, with fleet transactions accounting for 20.6 percent of total sales.

And as fuel prices climb, shoppers are turning to gas sippers, analysts noted.

“The market share of subcompact and compact vehicles is expected to climb 11.0 percent and 5.8 percent, respectively, from February to March,” Edmunds.com predicted.

“Midsize market share is also projected to climb 2.3 percent over the same period,” analysts added.

And as for market share by automaker, Chrysler continues its upward momentum, with its year-over-year sales and market share set to rise more than any other major auto manufacturer, the company explained.

Chrysler is expected to sell 164,000 vehicles in March, marking a 34.9 percent rise from last year.

Moreover, the OEM’s anticipated market share of 11.3 percent this month is a 1.5-percentage point  rise year-over-year.

And as for the Japanese manufacturers, Toyota is set to be the big player, which Edmunds.com contributed in part to “healthier inventory and favorable pricing.”

Edmunds.com expects Toyota sales to increase 22.1 percent year over year, with a 0.7 percentage point boost in market share, officials concluded.

Edmunds.com also offered the following charts to illustrate its findings:

 


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