As a Morgan Stanley banker in 2006, Dan Ammann helped General Motors Corp. dismantle its lending business. When he takes over as the automaker’s chief financial officer April 1, he’s going to try to build it back up.
GM is considering ways to expand into offering dealers loans for purchases of new inventory and will turn its GM Financial unit into a captive lending operation, Ammann said in an interview March 17.
“We are looking at that,” said Ammann, 38. “There is a range of ways to go about it. There is a whole set of alternatives we are looking at.”
The largest U.S. automaker hasn’t run a full-scale lending operation since it sold control of GMAC Inc. to a group led by Cerberus Capital Management in 2006, a sale Ammann helped lead as Detroit-based GM’s main banker at Morgan Stanley.
The sale was meant to raise cash for GM amid $82 billion in losses from 2005 to 2008 and protect the lender’s credit rating. The company now may be concerned that rivals such as Ford Motor Co. (F) will have an advantage by owning lending units, said Nick Colas, who worked with Ammann at Credit Suisse First Boston in the 1990s and now is chief market strategist for BNY ConvergEx Group LLC in New York.
GM began its expansion back into lending by buying Fort Worth, Texas-based AmeriCredit Inc. in October for $3.5 billion to write loans for subprime consumers and boost car sales. Since December, GM has used the unit, renamed GM Financial, to expand leasing options for car buyers.
While the company will boost its subprime and leasing businesses through GM Financial, GM has no current plans to get into lending to consumers with prime credit records, Ammann said. Ally Financial Inc., formerly GM’s GMAC finance arm, handled 38 percent of retail lending to GM buyers last year and 82 percent of floor-plan lending to GM dealers in the fourth quarter, the lender said in a statement.
Prime lending “is well-served by Ally and the banks,” Ammann said. For wholesale lending, “we could use some competition there.”
Ammann will face stiff challenges in expanding into dealer financing, also known as floor-plan lending, said Maryann Keller, principal of a self-titled consulting firm in Stamford, Connecticut. Those obstacles including being able to borrow funds cheaply enough to offer dealers attractive rates and getting them to leave lenders they already know, she said.
“Floor-plan lending is about building an individual relationship with a lender,” Keller said. “To get them to switch, you need to get people on the ground and get out and talk to dealers and build those relationships.”
GM Financial started a leasing program in Ohio late last year that has expanded into 20 other states through March, said Don Johnson, vice president for U.S. sales. GM expects to have leasing across the country by midyear, Johnson said last month.
Ammann echoed outgoing CFO Chris Liddell’s concern that moving too far into lending could pose a risk to GM’s balance sheet.
“We don’t need to run a $100 billion finance business,” Ammann said. The auto business “is a relatively high risk business. You don’t want to overlay more leverage on top of that risk.”
Ammann said he plans to pay off GM’s $10.1 billion in debt and preferred stock and make up its $11.5 billion pension shortfall. Ammann’s history with GM showed him the risk of carrying too much debt, BNY ConvergEx’s Colas said.
“What the last three years have taught us is that if you don’t have a balance sheet that prepares you for a dramatic change in the economy, you won’t survive,” Colas said. “Dan has seen the industry at its best and its cataclysmic worst.”
GM needs to be run without distractions after the tumultuous years that included the 2009 bankruptcy that created the new General Motors Co. (GM) and the November initial public offering, Ammann said.
“It’s getting everything settled down and getting the deal mindset behind us,” Ammann said. “Looking forward, it will be all about having the opportunity to run this business and use our assets in ways that we haven’t before.”
Ammann said he plans to be at GM “for the long term” to help the company work through its challenges. Since emerging from bankruptcy, the company has had three chief executive officers and Ammann will be its third CFO.
When Liddell announced his departure as CFO on March 10, Brian Johnson, a Barclays Capital analyst in Chicago, wrote that the news adds “to GM’s near-term pressures and further underscores investors’ comfort around the management team at Ford.”
Decade of Experience
Ammann has at least has a decade of experience with the automaker’s ills to guide him, said former GM CEO Fritz Henderson.
“Dan has a lot of experience with GM, both the good and the bad,” Henderson said in an interview. “He is unflappable and logical and greatly respected.”
That experience was part of why Liddell picked Ammann as treasurer in March 2010 and CEO Dan Akerson promoted him to the top finance position last week. Liddell resigned because he had sought the CEO job that was awarded to Akerson in August, a person familiar with the situation said the day of the announcement.
Ammann, who owns a 1961 Cadillac, said he never had planned to join GM during his days as an investment banker. He knew GM Vice Chairman Steve Girsky, who was an analyst at Morgan Stanley, and worked with Liddell at Credit Suisse in New Zealand, where they both were raised.
“It hadn’t been part of the long-term plan,” Ammann said. “It was a convergence of a few factors that led me to be here.”
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