GM Again Catering To The Bottom Of The Barrel By Purchasing Sub Prime Lender

 “This acquisition supports our efforts to design, build and sell the world’s best vehicles by expanding the financing options we can offer to consumers who want to buy GM vehicles," said GM Chairman and Chief Executive Officer, Ed Whitacre. “Adding AmeriCredit to our team will improve our competitiveness in auto financing offerings, and I am very pleased to have them on board."

 The acquisition establishes the core of a new GM captive financing arm that will enable GM to provide customers with a more complete range of financing options, while creating significant growth opportunities for both GM and AmeriCredit. Since GM and AmeriCredit launched a successful non-prime program in September 2009, GM’s non-prime penetration has increased significantly.  Upon completion of the transaction, AmeriCredit intends to also re-enter the leasing business which will provide expanded leasing availability for all GM customers.

 Direct ownership of AmeriCredit’s expertise will provide consistent availability of non-prime financing for GM customers throughout all economic cycles.  While AmeriCredit already has relationships with approximately 4,000 GM dealers, this transaction will enhance dealer receptivity and improve sales penetration rates through coordinated GM branding and targeted customer marketing initiatives.

 “With AmeriCredit providing us niche capabilities in leasing and non-prime financing, along with the continued strong support of Ally Financial and others for prime retail and dealer financing, we’ve set up a very competitive solution for our financing needs, which will be resilient through credit and business cycles,” said GM Vice Chairman and Chief Financial Officer, Chris Liddell. 

 AmeriCredit President and Chief Executive Officer Daniel Berce said, “We’re excited about joining the GM team. While we will be expanding our product set to more fully support GM, we’ll continue to offer our loan products to the more than 11,000 dealers across the country we serve today.  Long term, this transaction will deliver benefits to our dealers, customers and employees.”

 The highly regarded AmeriCredit management team will remain intact, which will assist in minimizing integration risk and maximizing opportunities between the two companies. 

 With total assets of approximately $10 billion, the acquisition of AmeriCredit poses minimal impact to GM’s balance sheet, and does not change GM’s objective of achieving strong investment grade status.  Under GM ownership, AmeriCredit will maintain its own direct access to the capital markets for its financing requirements.

 Under the terms of the agreement, which has been approved by both companies' boards of directors, at closing, AmeriCredit shareholders will receive $24.50 in cash for each share of stock held as of the transaction closing date.

 The transaction is expected to close by the end of the fourth quarter of 2010, pending certain closing conditions, including the approval of AmeriCredit shareholders.

 


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tundrahq - 7/22/2010 11:14:25 AM

0 Boost

I completely disagree - sub-prime lending is a cornerstone of the auto industry. Sub-prime loans are a great way to build a relationship with younger customers, and consumers with really bad credit tend to appreciate the company that gave them a 2nd or 3rd chance. I'm not saying every sub-prime customer is good, but there's no denying that it's a great opportunity to boost sales and build the brands.

Of course, it's also incredibly risky if it isn't done with care. GM is very wise to bring in outside expertise, and AmeriCredit is proven to be one of the best sub-prime lenders in existence. They've been doing it right for years, and despite their risky portfolio they didn't need any bailouts. In fact, they were one of the only companies capable of offering sub-prime loans in the last 18 months.

GM made a good choice - provided that they let AmeriCredit continue to manage itself as an independent lender, GM will have boosted it's sales volume with sub-prime customers with minimal risk.

91z4me - 7/22/2010 11:21:06 AM

+2 Boost

I personally, would rather GM have waited until after its IPO to do this.

MtlMotors - 7/22/2010 11:37:52 AM

+1 Boost

Why? This is good for their IPO due to the potential for more sales. AmeriCredit's good reputation on Wall Street will not hurt GM's IPO in the least.

91z4me - 7/22/2010 9:56:37 PM

+2 Boost

Because GM isn't a solvent company at the moment. It is at least partially, government owned. Any company that I am financing shouldn't be buying another company for billions of dollars, IMO.

Once they IPO and are no longer being financed by the taxpayers they can do whatever they want and spend whatever they want.

uaw_lax - 7/22/2010 12:22:49 PM

-1 Boost

"GM Again Catering To The Bottom Of The Barrel By Purchasing Sub Prime Lender"

Outside of glitz glamor of California most of the US are the have not's and trying to make cars more affordable for those is just genius.

theoptimisticpessimist - 7/22/2010 4:54:20 PM

0 Boost

“Bottom of the Barrel”

What an insipid headline. With the nations unemployment rate near 10% and the economy expecting a million foreclosure this year a lot of people are truly fraught, Referring to those that struggle or have problem in a negative manner is both tasteless and classist. Nice work going for the cheap headline

vogeygolf - 7/22/2010 6:36:29 PM

+1 Boost

This will be an out and out failure. Mark my words. Americredit has a history of boom and bust. It's the very nature of the sub-prime auto lending market. They'll run flat out for a couple of years, and they'll literally be out of the market for a year (like late 2008 thru say mid 2009) and will make a fraction of the number of loans. They don't know when to tighten credit criteria before it's WAY too late. This has also happened to them several times in the last decade.

I can make you a list of sub-prime lenders who have been purchased in the last 15 years by either banks or prime lenders, only to have issues with underwriting, corporate culture, or simply integrating a sub-prime operation. So, here's the list:

The Money Store: Purchased by First Union, I think in the late 1990's. Had been in business 70 years. First Union shut them down within a couple of years and wrote off $2 billion

Household/Beneficial: Purchased by HSBC. Announced in 2009 was shuttering all 2000+ retail offices in the US.

Fairline Credit: Purchased by Ford Motor Credit in the late 1990's. Left to operate independantly until about 2001, then integrated into Ford Motor Credit, and basically abandoned the deep subprime marketspace.

Just a few days ago, Wells Fargo Finance, formerly Norwest Finance. Previously Dial Finance (I worked for them from 1983-1988), perhaps the best managed finance company for 100 years, then became part of the Wells Fargo family. Wells announced they will close all their offices and make direct loans through the Wachovia offices.

This is a terrible time to be in sub-prime. Historically, sub-prime performance really suffers in an economic downturn. Normally the reason people have sub-prime credit is they don't have strong job stability. Weaker incomes too. These are the kind of jobs that are often lost at a faster rate in a recession. The borrowers are likely not to have any savings, so they just can't weather any kind of job loss or economic downturn. Quite honestly, I don't see a lot of jobs being created, so I believe we're going to suffer from a fairly flat economy without a lot of recovery in the labor market...for some time.

All of this, and basically GM used OUR tax dollars dolled out by the government to make this purchase. The inmates are running the asylum.

Joe_Limon - 7/22/2010 7:51:22 PM

+4 Boost

*shrugs* sub prime lending has astronomical rates attached with it, I see nothing wrong with it. If you are stupid enough to buy a brand new car when you can't afford one, you deserve to be financially raped for it.