Ally CEO says splitting from ResCap mortgage unit offers many benefits

Article by Christian A., on May 17, 2012

In an interview with Automotive News, Ally Financial CEO Michael Carpenter revealed that breaking free from its troubled ResCap mortgage subsidiary once and for all is beneficial for the Ally auto lending franchise in several ways. In addition, Chrysler Group and GM dealers in the United States could also benefit from Ally's move to divorce the mortgage unit.

 On Monday, Ally filed for Chapter 11 bankruptcy protection for ResCap along with a long list of related units in U.S. Bankruptcy Court in New York. Ally is the former GMAC subsidiary of General Motors, specializing in dealer floorplan financing and vehicle loans. The U.S. Treasury owns 74% of the company after a $17.2-billion government bailout. 

The separation of Ally from its troubled unit will benefit the company's credit rating, the CEO disclosed. As an independent vehicle finance and online banking franchise, the company is anticipated to achieve a more favorable credit rating, and therefore a lower cost of funds.

It can pass those savings on to its clients, expand its margins, or some of each. Ally can also benefit in terms of holding an initial public offering, which has been a tough sell for the company considering the large and undefined debts on its head due to the troubled ResCap.

An IPO would increase financing for the car franchise. It can also make it more convenient for the U.S. government to put all or part of its 74% share up for sale. Moreover, Ally can also gain capital investment benefits.

The shaky status of ResCap contributed to Ally failing a recent government "stress test" which is made to determine if the company has sufficient funds to survive a downturn. Divorcing ResCap frees up the capital which parent company Ally would be willing to put into ResCap. This additional capital can then be invested into the auto franchise. [source: Autonews]

Topics: ally financial

If you liked the article, share on:

Pin It

Comments

Recommended

It’s quite safe to say that this generation marks the rise of the electric cars. For the past few years, automakers have been very busy trying to find the perfect...
by - March 28, 2017
Want to go for a sportier look, but don’t have enough cash to burn? Good news for future Ford Edge buyers, as the 2018 model year will have an optional...
by - March 28, 2017
Audi refreshes its portfolio as its go-faster division officially announces the release of six new RS models by the end of 2018. That’s quite a huge number of cars to...
by - March 28, 2017
Has Toyota started the production of a new electric supercharger? Well, a patent that was recently published indicated that they might have. And this electric supercharger looks more durable and...
by - March 27, 2017
The Tesla Model S has finally arrived in South Korean soil and is now available for test drive. But, there’s a catch. You’ll have to wait several months if you...
by - March 27, 2017
Facebook

Youtube Channel

Tip Us
Do you have a tip for us?
Did you film an important event?
Contact us
Newsletter
Subscribe to our newsletter!
Subscribe
Galleries