General Motors Corp.'s GMAC financial services unit said Tuesday it will sell up to $55 billion worth of U.S. auto loans to Bank of America Corp. over the next five years.
Charlotte, N.C.-based Bank of America, the nation's third-largest bank, will make an initial purchase of $5 billion. In each of the agreement's five years, Bank of America will purchase up to $10 billion of GMAC's active U.S. auto-finance contracts.
GMAC will continue to service the auto-finance contracts. Bank of America will hold the loans and sell them to investors.
GMAC, which expects to earn at least $2.5 billion this year, has helped boost its parent company's sagging profits in recent years. But the division was hurt in May when Standard & Poor's Ratings Services and Fitch Ratings downgraded GM and GMAC debt to "junk" status.
The new deal will help GMAC finance more vehicles, GMAC's chief financial officer Sanjiv Khattri said.
"This further advances GMAC toward its 'originate and sell' business model in U.S. auto finance, providing us far greater flexibility to reallocate capital and further diversify the business portfolio," Khattri said in a statement.
Auto financing accounted for 77 percent of GMAC's income in 2002 but just 47 percent last year, Khattri told investors at a recent presentation. Income from its mortgage and insurance operations is expected to rise this year, while income from auto financing is expected to fall.
Tim Russi, president of Bank of America Dealer Financial Services, said the deal will allow it to significantly expand its share of the auto financing market.