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GM to sell stake in financing arm

"GM is having to throw furniture into the fireplace to keep the house warm."

John Casesa, a managing partner at New York-based Casesa Strategic Advisors

General Motors (GM) is expected to announce a deal sometime this week to sell a majority stake in its financing arm, GMAC, to a consortium of investors led by Cerberus Capital Management for about US$8 billion in cash, according to people involved in the negotiations.

The deal could be worth as much as US$14 billion over time, these people said.

The transaction could give GM some breathing room at a time when it is under increasing pressure to stabilize its finances, and as investors worry that the company could fall into bankruptcy. Still, some analysts question whether the sale of GMAC will be any more than a short-term fix.

GMAC has been one of the lone bright spots for GM, providing badly needed income as it reported deep losses at its automotive unit. Last year, GM lost US$10.6 billion, which would have been even steeper had the company not earned US$2.4 billion at GMAC.

The GMAC sale is the latest in a series of efforts by the company to raise cash.

Its strategy has been two-fold: GM has sold stakes in its own operations while selling stakes it holds in other companies.

Two such moves came last week, when GM sold a 78 percent stake in GMAC Commercial Holding Corp, its real estate venture, to a group of investors headed by Kohlberg Kravis Roberts -- a deal that raised US$1.5 billion in cash for GM -- while GMAC Commercial Holding agreed to pay GMAC for US$7.3 billion in loans once the transaction is final.

Meanwhile, Mitsubishi Motors of Japan said it was in talks to purchase some of GM's shares in Isuzu, another Japanese auto company, for US$340 million. GM has already sold its shares in Suzuki and in Fuji Heavy Industries.

The long-awaited GMAC sale will be "a relief to investors," said John Casesa, a managing partner at Casesa Strategic Advisors, a New York investment firm.

"It buys some time to solve the problems at the auto company," he said.

But he and other analysts have criticized the deal as a short-term solution that could come back to haunt GM.

"GM is having to throw furniture into the fireplace to keep the house warm," Casesa said.

On Friday, GM's biggest parts supplier, the Delphi Corp, asked a bankruptcy court judge for permission to cancel its labor contracts and impose sharply lower wages on members of six unions, including its largest, the United Automobile Workers. GM owned Delphi until 1999 and is liable for the pension and health care benefits of workers who were at GM before the spin-off.
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