Just when we thought GM has decided to not purchase or build its own finance arm, our favorite automaker has announced that it will acquire AmeriCredit. The move is expected to help consumers with tarnished credit get loans, increase the amount of leases provided to buyers, supply dealers with another borrowing option for their inventory, and strengthen GM’s public stock offering. GM CEO and Chairman Ed Whitacre expects the $3.5 billion purchase to close by the end of this year.
With loans totaling $9 billion from 800,000 retail customers, Fort Worth-based AmeriCredit is smaller than lending arms of Ford, Toyota, and Volkwagen. Nevertheless, this is definetely a start to put GM back in the game for sub-prime or non-prime borrowers. Sub-prime loans accounted for 18 percent of all new vehicle purchases in April and May, according to Melinda Zabritski, Director of automotive credit for Experian Automotive.
GM, which had $23 billion in cash as of March 31, plans to pay $24.50 in cash for each AmeriCredit share. Moreover, The General claims that 4,000 of its dealerships have already established some sort of relationship with AmeriCredit over the last few months.
Political Backlash… As Expected
As you would expect, some Senators got their panties in a bunch about the announcemt and instantly cried wolf. Of these is Senator Charles Grassley (R) of Iowa, who called on the Inspector General for the Troubled Asset Relief Program (TARP) to investigate GM’s acquisition of another company when it should be repaying taxpayers who are GM shareholders.
Thankfully, GM spokesperson Renee Rashid-Merem set Senator Grassley straight when she said “We are putting in place the foundation to sell more cars profitably. That increases the value of our company and eventually the return to shareholders and taxpayers.” It appears to us that Senator Grassley skipped (or maybe slept through) business 101.
The GM Authority Take
This is good news. A major automaker such as GM shouldn’t navigate today’s fiercely competitive automotive environment without its own captive finance arm, since decisions about when, where, and to whom to lend aren’t governed by the automaker itself, but rather by a “partner” bank such as Ally Financial.
Once approved by all the regulatory bodies, GM’s purchase of AmeriCredit should further strengthen consumer confidence in The General, which should boost the company’s market share and – consequently – IPO price.