07/22/2010
Bad credit? GM buys AmeriCredit to do sub-prime loans
Aching for a Camaro, but your credit is a little spotty? General Motors now has a deal for you. It announced this morning it was buying AmeriCredit., an auto finance company with a strong sub-prime loan specialty. Owning a finance company also will let GM do more leases.
The deal is for $3.5 billion in cash (thank you, Uncle Sam) and will close in the fourth quarter. GM has lost sales because it owned no so-called "captive" finance unit to step up for sub-prime buyers -- who are 40% of all car buyers. GM and Chrysler are the only major automakers without their own finance units to support sales. GM pioneered the idea of a car company having its own loan unit, but now-independent Ally (formerly GMAC) is pretty much out of sub-prime car loans and leasing as it digs out of its mortgage mess.
"For some time, our dealers and customers have said that not having an in-house finance arm hurt our ability to offer sales and leases," said GM CEO Ed Whitacre on a conference call. "As a result, we were not as competitive as we could be ... Now we are going to fix that."
GM and AmeriCredit have run a non-prime credit program together since September 2009 that has increased loans to sub-prime GM customers and the company already does business with most GM dealers.
GM says about 4% of its buyers now are sub-prime -- up, but still a significantly smaller percentage than the other big automakers, so the company has been losing buyers to other companies that can get the customer a loan.
While sub-prime loans helped sink the home loan business, its long been a big share of auto loans and lenders are experienced in making it work. The obvious difference: If you don't pay, there's no expensive, complicated foreclosure process. The repo man will have the car before morning.
Bad credit? GM buys AmeriCredit to do sub-prime loans
Aching for a Camaro, but your credit is a little spotty? General Motors now has a deal for you. It announced this morning it was buying AmeriCredit., an auto finance company with a strong sub-prime loan specialty. Owning a finance company also will let GM do more leases.
The deal is for $3.5 billion in cash (thank you, Uncle Sam) and will close in the fourth quarter. GM has lost sales because it owned no so-called "captive" finance unit to step up for sub-prime buyers -- who are 40% of all car buyers. GM and Chrysler are the only major automakers without their own finance units to support sales. GM pioneered the idea of a car company having its own loan unit, but now-independent Ally (formerly GMAC) is pretty much out of sub-prime car loans and leasing as it digs out of its mortgage mess.
"For some time, our dealers and customers have said that not having an in-house finance arm hurt our ability to offer sales and leases," said GM CEO Ed Whitacre on a conference call. "As a result, we were not as competitive as we could be ... Now we are going to fix that."
GM and AmeriCredit have run a non-prime credit program together since September 2009 that has increased loans to sub-prime GM customers and the company already does business with most GM dealers.
GM says about 4% of its buyers now are sub-prime -- up, but still a significantly smaller percentage than the other big automakers, so the company has been losing buyers to other companies that can get the customer a loan.
While sub-prime loans helped sink the home loan business, its long been a big share of auto loans and lenders are experienced in making it work. The obvious difference: If you don't pay, there's no expensive, complicated foreclosure process. The repo man will have the car before morning.
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