Bank of America and GMAC Announce Strategic Financing Agreement Valued at $55 Billion

Strategic Insights -

Bank of America and GMAC, the financial services subsidiary of General Motors Corp., have entered into a long-term strategic financing agreement to facilitate the purchase of up to $55 billion worth of GMAC retail automotive contracts over a five-year period. The agreement allows Bank of America to leverage its low-cost funding, risk management expertise, and strong lending base to benefit GMAC. This partnership marks a significant expansion of the existing relationship between the two companies and allows GMAC to accelerate its transition from an "originate and store" to an "originate and sell" U.S. auto finance business model.

Key Takeaways:

  • Bank of America will purchase up to $10 billion of GMAC's retail auto finance contracts in each of the agreement's five fiscal years, starting from July 2005 and concluding June 2010.
  • The agreement is valued at $55 billion, with an initial purchase of $5 billion by Bank of America.
  • GMAC will continue to service the auto finance contracts.
  • The partnership will enable GMAC to grow its business and accelerate its transition to the "originate and sell" business model.
  • Bank of America will leverage its expertise in risk management and funding to benefit GMAC.
  • Sanjiv Khattri, GMAC's executive vice president and chief financial officer, stated that this agreement will allow GMAC to fulfill its strategic mission to finance more GM vehicles without straining its balance sheet.
  • Tim Russi, president of Bank of America Dealer Financial Services, said that this agreement leverages Bank of America's low-cost funding, risk management expertise, and strong lending base to the benefit of GMAC.

Statistics:

  • The agreement is valued at $55 billion.
  • The initial purchase by Bank of America is $5 billion.
  • The partnership will allow Bank of America to purchase $10 billion of GMAC's retail auto finance contracts in each of the agreement's five fiscal years.
  • GMAC has extended more than $1.3 trillion in credit to finance over 158 million vehicles.

Sources:

  • General Motors Acceptance Corp., GMAC (2005, July 26). Business Wire. Retrieved from http://www.gm.com/investors/news-events/press-2005/2005-07-26a.htm