GM pays $3.5B for subprime lender
The Associated Press
General Motors Co. will buy AmeriCredit Corp. for $3.5 billion US, a deal that allows the automaker to expand loans to customers with poor credit and offer more leases.
Those are key areas where GM says it must grow to accelerate its car sales. But the acquisition of the independent auto financing company also means that GM, which is majority-owned by the governments of the United States, Canada and Ontario, is getting back into the business of making risky loans.
GM said it advised the U.S. Treasury Department of the acquisition, although government approval was not required.
Experts say such a move is exactly what the company needs to kick-start sales and move into new markets. But critics worry about the optics of a government-owned company getting into subprime lending in a major way.
GM executives have said for months that they were missing sales opportunities due to lack of credit for lease deals and financing for subprime buyers, those with credit scores below 620 on a 300-to-850-point scale.
About 40 per cent of U.S. customers have below-prime credit scores, said Chris Liddell, GM's chief financial officer.
"Clearly there's an opportunity to bring more people into our showrooms and help them with finance," he said after the deal was announced on Thursday.
Customers should now expect more lease deals from GM, which gets just seven per cent of its sales from leases, compared with 21 per cent for the industry, he said.
Only four per cent of GM's sales come from subprime buyers, which the company hopes to expand with the acquisition.
Liddell said even a modest increase in subprime buyers from four per cent to five would be significant. GM sold just over one million vehicles in the U.S. during the first half of the year.
Mike Jackson, CEO of AutoNation Inc., the largest auto dealership chain in the U.S., said he was thrilled with the acquisition because it would help his dealers increase sales.
"This is a big, strategic deal for General Motors. They absolutely needed to add this segment of the market to meet the needs of the customers coming into our dealerships," he said.
The deal allows AmeriCredit to expand into more GM dealerships, while continuing to offer financing to the more than 11,000 dealerships it has relationships with across the U.S.
The two companies have had a financial relationship for years. AmeriCredit, which already works with about 4,000 GM dealers, now gets about one-third of its business from financing new and used GM vehicles, GM said.
Overall, the auto financing company has about 800,000 customers and auto loans worth $9 billion US on its books.
Under the $3.5-billion US deal, GM will pay $24.50 in cash for each share of AmeriCredit. That's a 24 per cent premium over the company's closing price on Wednesday.
Investors were happy with the news, pushing up shares of AmeriCredit by $4.32, or 22 per cent, to $24.02 in midday trading Thursday.
AmeriCredit, based in Fort Worth, Texas, has been posting healthy earnings of late after suffering losses at the start of the recession and credit crisis. It reported net income of $63 million US, or 45 cents US per share, in its fiscal third quarter, which ended March 31.
GM expects the deal to close in the fourth quarter.
The automaker says that its partner, Ally Financial ? formerly known as GMAC Financial Services Inc. ? will continue to finance GM's dealer inventory and make loans to buyers with good credit.
GM says it is not considering a purchase of Ally's auto financing unit. GM sold controlling interest in GMAC in 2006.
The company eventually had to be bailed out by the U.S. government because of problems with its home mortgage loan unit.
Liddell said the AmeriCredit acquisition is helpful, but not essential for GM's planned public stock offering, which may take place in the fourth quarter. The sale would help the government get rid of at least part of its ownership stake in the company.
"I'll describe it as another useful building block in the foundation for the IPO," Liddell said.
(http://insert-disc.com/wp-content/uploads/2009/12/facepalm1.jpg)
Quote from: SVT666 on July 22, 2010, 12:35:09 PM
About 40 per cent of U.S. customers have below-prime credit scores, said Chris Liddell, GM's chief financial officer.
About 40 per cent of U.S. customers shouldn't be buying new cars.
Great so now we (taxpayers) can buy new cars for subprimers in addition to their houses.
Quote from: SVT32V on July 22, 2010, 01:45:31 PM
Great so now we (taxpayers) can buy new cars for subprimers in addition to their houses.
I just got a headache
Not to mention with their residual value history GM cars don't make great candidates for leasing
This really shows great thinking at every turn... wonder how GM got to where it is today :facepalm:
Weren't they having trouble with financing cars, however? I don't think they should be going ahead with a deal like this, but provided a GM recovery is well sorted, then this could work out.
You know, Mitsubishi did something very similar in 1999 when it was doing incredibly well in the US industry. Can someone please tell me how they're doing today, please?
Quote from: the Teuton on July 22, 2010, 10:19:43 PM
You know, Mitsubishi did something very similar in 1999 when it was doing incredibly well in the US industry. Can someone please tell me how they're doing today, please?
Better than they were in 1999. :mask:
You know it's easy to forget that Mitsubishi is still around.
Quote from: SVT666 on July 22, 2010, 10:31:28 PM
Better than they were in 1999. :mask:
(Answer: People defaulted en masse and it almost killed them here)
Did you guys read the article?
This lender already does a 1/3 of its entire business with GM dealers.
4% of GM's current customers are sub prime borrowers. With this acquisition they hope to make it 5%.
This lender is currently operating at a profit.
GM's subprime sales are extremely low at the moment. In comparison, I've read that something like 20% of Hondas are sold to people with subprime credit.
As my accountant says, "If you have to finance a car, you can't afford it."
But there's no reason why GM should not be making money from people who cannot afford their products.
Quote from: Morris Minor on July 23, 2010, 12:40:14 PM
As my accountant says, "If you have to finance a car, you can't afford it."
But there's no reason why GM should not be making money from people who cannot afford their products.
ABSOLUTELY.
-> awaiting the arbitrage argument...
Plus they weathered the financial shitstorm pretty well.
Quote from: Morris Minor on July 23, 2010, 12:40:14 PM
As my accountant says, "If you have to finance a car, you can't afford it."
But there's no reason why GM should not be making money from people who cannot afford their products.
Until the shit heads are bailed out with public dollars because they were "tricked" into the loans in the first place.