GM to Acquire AmeriCredit for $3.5 Billion to Provide Automotive Financing
By Michelle Krebs July 22, 2010
General Motors announced Thursday morning that it has signed an agreement to acquire AmeriCredit, one of the nation's leading independent auto finance companies, for $3.5 billion. The purchase will help GM obtain automotive financing for its vehicles, particularly for subprime and lease customers.
Easier customer access to financing will help drive GM vehicle sales, said GM Vice President Steve Girsky in a conference call with media and analysts Thursday morning. AmeriCredit becomes GM's captive financing arm, a function had been filled by GMAC before GM sold its 
controlling interest in the finance company in 2006. Girsky said Ally Financial, the new name for GMAC, still will provide financing for prime customers, the bulk of GM's business.
However, Girsky added that GM "has no intention of getting back to a full-blown captive finance arm."
America Goes Subprime
Girsky said 40 percent of American consumers now fall in sub-prime categories -- consumers with credit scores below 700. Without having the ability to finance those customers, GM was missing out on sales, Girsky said, though he could not put a number on those missed sales.
Indeed, the inability to obtain loans is restricting some consumers from buying new cars, according to an analysis by Edmunds.com, which on its shopping site offers consumer advice on their search for automotive financing.
Deep sub-prime, sub-prime and non-prime new car loans collectively dropped 6.3 percent in the first quarter, while prime and super-prime loans collectively increased 1.4 percent compared with the same period last year, according to Experian.
Edmunds.com's research indicates that the average interest rate on a new car loan in June 2010 was 4.7 percent. In June 2009 the average annual percentage rate (APR) on auto loans was 5.9 percent.
Ivan Drury, industry analyst for Edmunds.com, explains, "Today most auto loans are going to buyers with good credit who qualify for a better rate, and that is lowering the average."
GM as well as Chrysler have been shut out of the market and have been looking for ways to tap into financing for non-prime buyers, as an earlier story in AutoObserver noted.
Losing Out on Leasing
As for leasing, a scant 7 percent of GM vehicle sales have been in leasing, compared to the industry average of 21 percent, suggesting another place where the automaker is missing out on sales. The gap between the rest of the luxury and near-luxury business with competitors like BMW and Mercedes-Benz compared to GM's Cadillac and Buick divisions, is even wider, Girksy noted.
GM and AmeriCredit have worked together in the recent past. In September last year, the two launched a financing program for non-prime customers that the two declared a success. Girsky said the two companies, through someone he knows at AmeriCredit, began discussing expansion to their business relationship. A large block of stock became available and ultimately GM decided to buy the entire company. Girsky said GM wanted to control it for growth over the long term versus forging a partnership or purchasing minority ownership stake.
AmeriCredit, established in 1992 and headquartered in Fort Worth, Texas, provides financing indirectly to customers through auto dealers nationwide. AmerCredit has approximately 3,000 employees in the U.S. and Canada and 800,000 customers -- mostly used-car customers that GM sees potential to converting to new-car buyers.
AmeriCredit's has $9 billion in auto receivables, a drop in the bucket compared with those of GM's major competitors. Toyota Motor Credit has about $80 billion in auto receivables; Ford Credit and Volkswagen's finance arm each have $100 billion or so in auto receivables.
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