General Motors on Thursday said it would acquire independent auto finance company AmeriCredit, in an all-cash transaction for US$3.5 bn, “to meet customer demand for leasing and non-prime financing for GM vehicles”, giving it a captive finance arm for the first time since 2006 when it sold control of GMAC, (recently renamed Ally Financial).
“This acquisition [expands] the financing options we can offer to consumers who want to buy GM vehicles,” said the automaker’s chairman and CEO Ed Whitacre. “Adding AmeriCredit to our team will improve our competitiveness in auto financing offerings.”
Go deeper with GlobalData
GM said the buy would add a new captive financing arm that could “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,” GM said in a statement.
“Direct ownership of AmeriCredit’s expertise will provide consistent availability of non-prime financing for GM customers throughout all economic cycles.”
AmeriCredit already has relationships with around 4,000 GM dealers and will now benefit from “coordinated GM branding and targeted customer marketing initiatives”.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalData“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 CFO Chris Liddell.
AmeriCredit president and CEO Daniel Berce said the financier would expand its product line “to more fully support GM”.
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, the automaker said, adding that AmeriCredit would maintain its own direct access to the capital markets for its financing requirements under new ownership.
AmeriCredit shareholders will receive $24.50 in cash for each share.
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.
AmeriCredit has 3,000 employees in the US and Canada, 800,000 customers and $9bn in auto receivables. It was founded in 1992 and is based in Fort Worth, Texas.
“This is another useful building block in the foundation for an IPO,” Liddell said during a conference call on Thursday. “It allows us, for a relatively modest capital investment, to target an area where there is vast potential.”
According to the Wall Street Journal, Liddell said leasing comprises 7% of GM’s business compared to an industry average of 21%. Around 4% of GM buyers have subprime credit, while about 40% of US consumers fall into that category.
Liddell said that AmerCredit’s share of GM sales won’t likely surpass around 10% but that the added business will allow GM to target consumers previously out of reach. The auto maker will continue to seek ties with other banks, as it has been doing for several months, to further expand the availability of loans.
The WSJ noted that GMAC had tightened auto lending during the economic meltdown in 2008, a move that hobbled GM and preceded the auto maker’s descent into bankruptcy. Ford and Toyota, each with its own captive lender, were able to offer cheaper loans and leases to car buyers during the downturn.
Last year, GM and Americredit agreed to provide loans to subprime borrowers using cash incentives passed down from GM.
Ally Financial will continue to provide loans to consumers with prime credit and financing with dealers.
US auto buyers advice website Edmunds.com said deep sub-prime, sub-prime and non-prime new car loans collectively dropped 6.3% in the first quarter, while prime and super-prime loans collectively increased 1.4% compared with the same period last year, according to Experian data.
The average interest rate on a new car loan in June 2010 was 4.7% compared with 5.9% in the same month last year.
Edmunds industry analyst Ivan Drury said: “Today, most auto loans are going to buyers with good credit who qualify for a better rate, and that is lowering the average.”
Chrysler and GM are aware of this trend and are anxious to tap into buyers presumably shut out of the market because of their credit scores, Edmunds added.
“Of course, GM needs the volume. With consumer buying intentions the lowest since record began being kept in 1967, sub-prime may be all that’s left,” just-auto US correspondent Bill Cawthon said.
“The two leading auto mega-retailers in the US have been reducing their sales of Detroit cars for years,” he noted. “AutoNation now gets about a third of its sales from bread-and-butter American cars and Penske gets only about 5% – Penske is focused on non-domestic brands and luxury vehicles.”
