Embattled GM Finds Cash in Financing Arm General Motors has agreed to sell a majority stake in its financing arm, GMAC, to a group of investors for a total of $13 billion over three years. The infusion of cash will help GM, which lost $10 billion last year, cut its debt and move it toward a restoration of its debt to investment grade from junk status.
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Embattled GM Finds Cash in Financing Arm

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Embattled GM Finds Cash in Financing Arm

Embattled GM Finds Cash in Financing Arm

Embattled GM Finds Cash in Financing Arm

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General Motors has agreed to sell a majority stake in its financing arm, GMAC, to a group of investors for a total of $13 billion over three years. The infusion of cash will help GM, which lost $10 billion last year, cut its debt and move it toward a restoration of its debt to investment grade from junk status.

MELISSA BLOCK, host:

From NPR News this is ALL THINGS CONSIDERED, I'm Melissa Block.

General Motors has announced a deal it hopes will give the company some breathing room as it plans a turnaround. GM's board will sell a majority stake in the company's finance arm, GMAC, to a private investment firm for 14 billion dollars. GM did its best to put a positive spin on the news, but as NPR's Jack Speer reports the sale of the company's only profitable division focused attention on GM's many weaknesses.

JACK SPEER reporting:

By selling 51 percent of GMAC to a private investment group, CEO Rick Wagoner said the company is achieving another important milestone in the turnaround of General Motors. And joking with reporters, the embattled CEO said he also appreciates the vote of confidence he got from the GM Board.

Mr. RICK WAGONER (CEO, General Motors): I appreciate support from the board, our workers, my wife, anybody I can get it from these days so that's all a plus.

SPEER: Wagoner went on to say when people in the future look at this time period they will realize just how critical recent actions have been.

Mr. WAGONER: In the context of history, the last six months are going to prove to be pivotal in basically restructuring the business so we can have a viable future going forward, not just getting a profit for a quarter or two but building a robust business model that reflects today's reality.

SPEER: GM lost more than ten and a half billion dollars last year and is currently offering early retirement buyouts to more than one hundred thousand of its workers. But there are those who wonder even the moves announced so far will be enough.

Dr.PETER MORICI (Professor, University of Maryland, Smith School of Business): Companies as big as General Motors have not been able to turn themselves around.

SPEER: Peter Morici is a professor at the University of Maryland Business School. He says history is replete with examples of large companies that tried to restructure outside of bankruptcy and ultimately could not.

Dr. MORICI: If you look at the steel sector, LTV, Bethlehem, Acme, National, all failed because their management couldn't address the problems that they had with the United Steel Workers. In the end they ended up in bankruptcy and it took new independent management to come in and shake things up, cut a new deal, and put together the kinds of disciplines necessary to produce a product the market would accept.

SPEER: But others say that GM, despite its losses, still has billions of dollars of cash in the bank, and with the latest deal gets another 14 billion dollars in liquidity. David Healy is an auto industry analyst at Burnham Securities. He thinks GM's problems are solvable.

Mr. DAVID HEALY (Auto Industry Analyst, Burnham Securities): Auto industry turnarounds which have been necessary every now and again, have always worked except, historically, at GM. This time I think it's different because Wagoner, the CEO of GM, is very aggressively tackling their problems.

SPEER: GM hopes bringing in new investors will allow GMAC to restore its ailing credit rating, which has been dragged down along with the value of GM stock. GMAC provides automotive and commercial financing as well as mortgage services. Last year in sharp contrast to parent GM, it earned $2.8 billion. Jack Speer, NPR News, Washington.

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