GM is back in loan busi­ness with pur­chase of Amer­iCredit

$3.5 bil­lion deal for Fort Worth firm made with eye on sales, leases to sub­prime cus­tomers

Austin American-Statesman - - BUSINESS & PERSONAL FINANCE -

Gen­eral Mo­tors Co. will buy Fort Worth­based Amer­iCredit Corp. for $3.5 bil­lion, a deal that al­lows the au­tomaker to ex­pand loans to cus­tomers with sub­par credit and of­fer more leases, key ar­eas where GM must grow to ac­cel­er­ate its ve­hi­cle sales.

But the ac­qui­si­tion of the in­de­pen­dent auto fi­nanc­ing com­pany also means that GM, which is 61 per­cent owned by the U.S. govern­ment, is get­ting back into the busi­ness of mak­ing loans. GM said it ad­vised the U.S. Trea­sury Depart­ment of the ac­qui­si­tion, though govern­ment ap­proval was not re­quired.

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 scale rang­ing from 300 to 850 points. About 40 per­cent of U.S. cus­tomers have sub­prime 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,” Lid­dell said af­ter the deal was an­nounced.

Cus­tomers should now ex­pect more lease deals from GM, which gets just 7 per­cent of its sales from leases, com­pared with 21 per­cent for the in­dus­try, he said. GM sold slightly more than 1 mil­lion ve­hi­cles in the U.S. dur­ing the first half of this year.

Only 4 per­cent of GM’s sales come from sub­prime buy­ers, which the com­pany hopes to ex­pand with the ac­qui­si­tion. Lid­dell said that an in­crease of even 1 per­cent­age point in sub­prime buy­ers, from 4 to 5 per­cent, would be sig­nif­i­cant.

Mike Jack­son, CEO of Au­toNa­tion Inc., the largest auto deal­er­ship chain in the U.S., said he was thrilled with the ac­qui­si­tion be­cause it will 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,”

Con­tin­ued from B Jack­son 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 $9 bil­lion worth of auto loans on its books.

Un­der the $3.5 bil­lion deal, GM will pay $24.50 in cash for each share of Amer­iCredit. That’s a 24 per­cent pre­mium over the com­pany’s Wed­nes­day clos­ing price.

Amer­iCredit has been post­ing healthy earn­ings of late af­ter sus­tain­ing losses at the start of the re­ces­sion and credit cri­sis. It re­ported net in­come of $63 mil­lion, or 45 cents per share, in its fis­cal third quar­ter, which ended March 31. No job re­duc­tions were ex­pected, and Amer­iCredit was ex­pected to con­tinue op­er­at­ing in­de­pen­dently from its Texas head­quar­ters with its present man­age­ment struc­ture, ac­cord­ing to a fil­ing with the Se­cu­ri­ties and Ex­change Com­mis­sion.

GM ex­pects the deal to close in this year’s 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.

Chris Lid­dell GM’s fi­nance chief sees chance to bring more peo­ple into show­rooms, help them pay for ve­hi­cles.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.