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GM to purchase foreign Ally Financial operations

Michigan based auto giant General Motors has announced its intent to purchase Ally Financial's assets in Europe, Latin America and China in effort to help strengthen its presence in markets where competing companies run their own loan operations. Ally previously provided financing to GM's customers as the General Motors Acceptance Corporation, but was taken over by the federal government in 2008 and returned to profitability in 2010.

GM Financial will pay $4.25 billion for the assets, with $2 billion of those funds coming from GM. The deal will provide Ally with a $550 million premium over their listed value of $3.7 billion. While the sale has yet to be approved by regulators, both parties expect the deal to reach completion sometime in 2013.

Analysts say that GM likely seeks to purchase the Ally assets because it was highly profitable for the company before the 2008 banking meltdown. It may also want to capitalize on growing middle class markets in Latin America and Europe. The deal will also grant it 40 percent interest in a Chinese auto financing company, which is currently held by Ally. Following the deal, GM Financial's total assets are expected to double to $33 billion. However, its debts will also expand, increasing from $12 billion to $27 billion. GM Financial was formerly known as Americredit until it was acquired by GM for $3.5 billion.

According to GM's CFO, the new assets should help GM provide financing in more markets and boost sales for the automaker's newly introduced models. He also noted that it would help GM compete with other automakers, which were previously able to finance 10 to 15 percent more foreign sales. "If we're successful in closing [the acquisition], it's going to result in a significant increase in sales," explained the CFO. According to other GM executives, the company does not currently have plans to purchase any of Ally's operation in North America.

Source: Bradenton Herald, "GM buying Ally assets in Europe and Latin America," Tom Krisher, Nov. 21, 2012

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