GM Drops $3.5b On Subprime Lender AmeriCredit

Edward Niedermeyer
by Edward Niedermeyer
gm drops 3 5b on subprime lender americredit

After months of speculation about GM’s re-entry into the subprime lending market, The General has announced a deal in which it will purchase the lender AmeriCredit for $3.5b. Founded in 1992, and managing assets worth $10b, AmeriCredit has been pursued by GM for the last month, according to GM CFO Chris Liddell in the WSJ [sub]. GM paid AmeriCredit stockholders $24.50 per share for a controlling interest in the firm, a 24 percent premium over its $19.70 closing price yesterday. Still, GM insists that acquiring AmeriCredit will have “a minimal impact” on its balance sheet, although no explanation is given as to how. $3.5b is at least ten percent of GM’s cash pile at this point, and it’s not clear if that qualifies it as a “minimal impact” or if GM is using some kind of financial instrument to purchase the firm. AmeriCredit says it will “expand its offerings” to support GM, likely in the area of lease deals, but it will also continue to offer loans to non-GM-brand car deals.

Meanwhile, the debate over GM’s re-entry into the subprime market will likely to continue generating controversy. Subprime lending has long been a preferred method of maintaining sales growth through periods of slow demand, but analysts warn that there’s very little that automakers can do to turn around the soft underlying demand for cars. GM’s response [via AP/Google]:

Liddell said that customers could now expect more lease deals from GM. Only 7 percent of its sales are from leases, compared with 21 percent for the industry, he said. Only 4 percent of GM’s sales come from subprime buyers, which the company hopes to expand with its AmeriCredit acquisition.

With 40 percent of the new car market estimated to have a credit score of 620 or under (the definition of subprime), there’s no doubt that GM can move some metal with the help of AmeriCredit. But what if the overall economy and unemployment in particular stay low? If GM signs a load of new subprime loans, default risks could start piling on. And though GM has room to grow its leasing business (particularly at Cadillac), it’s led the industry in cash incentives for most of this year, suggesting that no amount of financial wizardry will restore demand to the levels its looking for. If this deal helps GM wean itself off its incentive addiction, it will have been worth it. If the idea is to pile on incentives, lease deals and subprime loans in order to redline demand for its vehicles ahead of an IPO, GM could be setting itself up for a big fall. And with plenty of demands on its cash already, one big stumble could become a big problem on short notice.

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3 of 23 comments
  • John Horner John Horner on Jul 23, 2010

    GM needs to have the same customer financing capability its competitors have, otherwise it will always be at a significant disadvantage.

  • Geo. Levecque Geo. Levecque on Jul 23, 2010

    Let's face it, the only thing that counts with General Motors aka the Taxpayer. is Sales, most important to make lots of Sales to whoever, who cares if the Customer has not enough Money to pay for his new vehicle?

    • Steven02 Steven02 on Jul 23, 2010

      You could it is all that matters for every other automaker because they engage in this same practice.

  • Sgeffe Why on Earth can’t you just get the torque specs and do it yourself if you’re so-inclined?!
  • Sgeffe As was stated in another comment, the FAA nominee went down in flames. But the NTSB chairwoman certainly didn’t, and she’s certainly not qualified either!Lots of this kind of stuff going on both sides of the aisle—Ben Carson would have arguably made a better Surgeon General than HUD Secretary under Trump, for example.
  • Art Vandelay Interesting, the Polestar 2 I had as a rental utilized Android Automotive which is what GM said it is going to exclusively, yet it still offers Apple CarPlay according to this. Wonder if GM will do the same.
  • Stuart de Baker EVs just aren't ready for prime time for those with a single car and who take road trips. Being able to charge as soon as you arrive at a charging station, and even the chargers working on your car is a crapshoot. In the former case, you could have to wait for nearly an hour while someone else is charging.I also don't find EVs particularly fun to drive (I've driven a Tesla Model S and an Ionic 5.) I LOVE driving my '08 Civic (stick). I love the handling, the feel and responsiveness of the engine, the precise steering (the Michelin Pilot Ultra Sport tires help, but even with the snows on, the car is a joy). I have 152k on the clock, and hopefully another 25 years or so of driving (I was born early in the Eisenhower Administration and I have exceptionally healthy habits), and I'm going to try to keep the Civic for the duration.My Civic causes a less global warming emissions than some of these humongous battery operated trucks.
  • FreedMike They should throw in a Lordstown pickup with every purchase. Make it the “vapor twofer.”