GM To Repurchase Ally Financial?

JP Morgan has published a research report on General Motors (NYSE: GM) after visiting the 2011 Detroit International Auto Show in Michigan.

In the report, JP Morgan writes "Recent media articles have suggested GM may be interested in repurchasing parts of its former auto financing subsidiary (now call Ally Financial). Management avoided providing an explicit view on this but the CEO did casually note that GM would of course look at everything and alluded that GM was regularly concerned about wholesale financing availability (dealer floor-plan financing, one of Ally's key auto lending products). We believe GM should look to reacquire all or parts of Ally Financial's auto lending business in order to regain a full service in-house financing arm, although GM may simply be looking to do something more limited (e.g. a formal JV with Ally on the wholesale side, etc). We are unsure of the type of transaction that can unfold if any, but we would note that buying all or parts of Ally's auto lending business now may be well-timed because Ally's financial outlook has improved but it is not yet public meaning GM effectively only has to negotiate with the US government (after Ally goes public, as is widely anticipated, Ally public shareholders obviously also have a say on valuation). A potential deal structure could involve GM stock (i.e., GM pays US Treasury for parts of Ally with GM shares or shares/cash combination, and the shares can subsequently be sold by UST as part of its broader efforts to sell down its GM stake)."

JP Morgan maintains its Overweight rating and $44 price target.

General Motors closed yesterday at $38.75.