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Kai Ryssdal: Strange though it may be for you to hear this, given the bankruptcy and bailout, this is not actually a bad time to be General Motors. Sales are up. Drivers are excited about the cars GM makes. The Chevy Volt was just named ‘car of the year’ at the Detroit Auto Show. So General Motors has everything an auto company could want — except an in-house finance business. According to the Wall Street Journal today, General Motors is looking to change that. It wants to buy back Ally Bank, the company formerly known as GMAC.
Marketplace’s Alisa Roth reports.
Alisa Roth: The car business is really cash intensive. Dealers have to buy vehicles from the manufacturers. And drivers need access to cash to buy from the dealers.
Sean McAlinden: People just don’t pay cash for automobiles. They need financing to fund something of that size.
Sean McAlinden is chief economist at the Center for Automotive Research. He says dealers need to borrow too. So-called captive finance arms — like Ford Motor Credit or Toyota Financial — lend to dealers and car buyers. They’re wholly-owned subsidiaries of the carmakers.
Andy Koblenz is with the National Automobile Dealers Association. He says that means they offer a competitive edge.
Andy Koblenz: It’s very valuable for the dealers to have a captive finance arm associated with their manufacturer. It’s not the end of the world if they don’t, but there’s definite benefits to it.
GM sold its captive finance company, which used to be called GMAC, in 2006 when it needed money. McAlinden, the economist, says not having in-house financing puts GM at a disadvantage. Because it could be making money off the loans, or selling more cars by offering better rates to buyers.
McAlinden: It’s like letting Ford make an extra billion dollars a year or a billion and a half on their finance arm and you don’t have that profit. Eventually that’s going to hurt you.
GM may have to look elsewhere though: Six months ago Ally turned down the carmaker’s offer to buy part of its business. Ally wouldn’t comment today. GM didn’t return calls before deadline.
I’m Alisa Roth for Marketplace.
Ryssdal: You should know that Ally Bank is an underwriter of this broadcast.
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