This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

GM's AmeriCredit Deal Could Be Tax Bonanza

Stocks in this article: ACF AIG C F FMCC.OB FNMA.OB BDE

NEW YORK ( TheStreet) -- General Motors' planned acquisition of AmeriCredit Corp (ACF) could generate a $3 to $5 billion tax windfall that would allow the company to pay for the $3.5 billion deal the day it is completed.

GM will use its past losses to shelter earnings from AmeriCredit. That could presage a host of similar deals by companies that are still rebuilding themselves in the wake of the financial crisis, according to Robert Willens, a well-known corporate tax expert and head of Robert Willens LLC.

GM CFO Chris Liddell briefly alluded to the tax benefits on a public conference call following the deal's announcement.

"AmeriCredit is a taxpayer and clearly under our ownership we would seal those--that taxable income with our tax losses," he said. He gave no specifics, and a company spokeswoman declined to elaborate on his comments.

Accounting rules state that when companies have a better than 50% chance of earning enough money to make use of past losses to offset their tax bill they can claim the losses as an asset, often referred to as a "deferred tax asset." When companies have a history of repeated losses they must take a "valuation allowance" which is recorded as a liability.

Following its emergence from bankruptcy protection at the end of 2009 GM reported a valuation allowance -- which is a combination of previous year losses -- of just over $45 billion.

But if GM becomes consistently profitable again it can reduce the valuation allowance, converting the liability to an asset and giving a boost to earnings and book value.

Chris Brendler, analyst with Stifel Nicholaus, believes AmeriCredit can grow earnings by 10-15% annually as part of GM. That adds up to some $8-12 billion through 2025, the year GM's net operating losses (effectively tax credits from past losses) expire.

Assuming the standard corporate tax rate of 40%, those $8-12 billion of earnings would ordinarily result in a tax bill of $3-5 billion for AmeriCredit. As part of GM, though, AmeriCredit likely won't pay any taxes at all.

1 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs