GM's GMAC sale: home run or pop fly?

After the photo ops and cheery press releases that marked GM's announcement on Monday that it will sell 51-percent of its GMAC finance subsidiary to an investment consortium for $14 billion, cooler heads in the investment community are putting a bit of a damper on the celebrations.
GMAC CEO Eric Feldstein admitted that the deal itself could be at risk if Delphi's game of chicken with the UAW results in a lengthy strike at GM's main parts supplier, what with the resulting drain on GM's resources and a further erosion of the automaker's already basement-level credit rating.

Even a key objective of the sale - restoring GMAC's credit rating to investment grade - may not be met. Initial reactions from rating agencies have not been enthusiastic.

GMAC has been GM's only source of profit in North America, contributing $2.5 billion in 2005. The sale puts a serious hole in GM's earnings capability going forward. Finally, although the sale improves GM's liquidity position, it leaves GM as an undiversified, pure auto industry play for investors, and a risky one, at that.

The result? GM shares opened Monday at $21.27 and fell 5.3-percent by the end of the day. In early afternoon trading on Wednesday, GM was trading at $19.20, down nearly 10-percent since the start of the week.

[Sources: Reuters, GM]

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