Ally Financial, formerly General Motors Acceptance Corp., has officially filed for its long-awaited initial public offering to redeem stock currently owned by the federal government.

The U.S. Treasury Dept. took an ownership position to support the auto industry during the dark days of the Great Recession when credit markets dried up.  The pricing for the IPO is slated for April 9.

In 2006, a distressed General Motors sold 50.1% of GMAC to a group led by Cerberus Capital Management in a transaction now known in some circles as the “deal from hell.”

The sale by GM was motivated by the desire to avoid having the lender’s investment-grade credit rating tarnished by the poor credit rating of its parent automaker that three years later would file for bankruptcy.

Cerberus gave up its majority ownership during the Great Recession in exchange for government assistance. GMAC became Ally after it received bank holding company status which allowed it to receive the Troubled Asset Relief Program funds. 

It functioned as a captive-finance arm for both GM and Chrysler dealers for a spell; repaid $15.3 billion to Treasury for the TARP loans; spun off its Residential Capital mortgage unit, which then declared bankruptcy; and recently entered into a consent agreement with the Consumer Financial Protection Bureau to pay $98 million in fines and restitution.

The bureau alleges some of Ally’s dealer clients had charged higher auto-loan rates to members of minority groups. The government’s so-called disparate impact case has sparked controversy, with many auto retailing and financing people questioning how the bureau came up with its data in an analysis that is costing Ally nearly $100 million in fines and restitutions.

Ally flunked its Federal Reserve stress test a year ago, but passed the most recent one. The test determines whether a financial institution is on solid enough ground to withstand a theoretical economic crisis.

Passing the stress test and settling with the CFPB effectively paved the way for the IPO filing.

The Treasury Dept. (or taxpayers) will still hold between 14% and 17% ownership of Ally, down from the 37% stake the government agency now owns, according to Bloomberg,.

Reuters says the Treasury Department has recovered about $15.3 billion of the $17.2 billion in funds provided to Ally. An IPO worth $3 billion would allow the taxpayers to make a profit on their investment.

Ally and its Dealer Financial Services division have almost 800,000 customers, more than 1.5 million accounts and total deposits of nearly $53 billion. 

The big question is: Who will want to invest in Ally stock? It no longer is the captive finance arm for GM or Chrysler. Those previous contractual relationships directed huge amounts of business to Ally. 

Perhaps Ally will become another nationwide financial institution like Wells Fargo, Bank of America and Chase, while maintaining many long-standing relationships it has had with auto dealers. 

Those relationships include a large portfolio of capital-improvement and inventory floor-planning loans. But Ally lacks the brick-and-mortar presence of a Wells Fargo or U.S Bank.   

Taxpayers would like to see the Treasury Dept. profit from its GMAC/Ally investment, regardless of it stemming from emergency circumstances.   

Supporting Ally helped avoid a much larger economic calamity that would have cost more than any potential loss on the investment. 

There is almost universal sympathy in the industry for Ally because of the consent-agreement costs assessed by the CFPB. The bureau knew Ally needed an IPO, and used that knowledge to extort the consent agreement. 

It is clear Ally’s business model will have to change based on the loss of its previous captive-lender arrangements.  What will their business model change to?  I’d like to know the answer to that before investing.  We’ll soon find out how many other prospective investors feel the same way.

David Ruggles is an auto consultant and former dealership general manager. He can be reached at Ruggles@msn.com.