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Gm Sells Allison Unit

Another piece of the U.S. auto industry fell to the hands of private investors as General Motor Corp.'s decided to sell its Allison Transmission unit to a pair of buyout firms for $5.6 billion Thursday last week.

The automaker has agreed to sell Allison's commercial and military business, based in Indianapolis, to investment firms The Carlyle Group and Onex Corp. The Carlyle Group is a Washington, D.C.-based private equity firm. Onex Corp. is a Toronto-based investment conglomerate.

A production facility in Baltimore that builds conventional and hybrid transmissions for pickup trucks and sport utility vehicles however, will remain with GM.

"This is another important step to strengthen our liquidity and provide resources to support our heavy investments in new products and technology," GM Chairman and Chief Executive Officer Rick Wagoner said in a statement.

GM, which has lost more than $12 billion in two years, will reportedly use the money to cover turnaround-related expenses including plant closings, worker buyouts and the production of new models.

GM's is currently cost-cutting by letting go of units which are not directly related to its core business of building passenger cars and trucks. Aside from the Alison deal, the automaker has also sold more than $16 billion in assets over the past two years. This includes last year's $14 billion sale of the GMAC financial services company to private equity firm Cerberus Capital Management LP. GM – maker of quality GMC bed rail cap, is also reportedly considering selling a Flint-based unit that makes medium-duty trucks.

Wall Street on Thursday responded positively to news of the Allison sale, sending GM stock up 2 percent to $38.15 -- its highest level since January 2005.

Some analysts however, projected that the Allison unit was worth significantly less than the $5.6 billion GM commanded. JP Morgan analyst Himanshu Patel said in a note that GM could use proceeds from the sale to pay for a trust fund that would cover workers' health care, like the deal between Goodyear Tire & Rubber Co. and the United Steelworkers union.

Allison employs about 3,400 people and had 2006 sales of $2.2 billion. GM made about $340 million off the company last year. But in the first quarter of this year, the automaker made a razor-thin $62 million profit globally, but lost $46 million on its North American operations.

The Allison deal is reportedly expected to close as early as the third quarter of this year, if approved by the United Auto Workers union and federal regulators.

Iver Penn

Iver Penn is a Mass Communications graduate who hails from Wyoming. She is at present an associate editor of a publishing company in Colorado.

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