is hoping to enable customers with lower credit scores to buy its vehicles with its planned acquisition of subprime auto lender
GM will pay $3.5 billion, or $24.50 in cash for each share of AmeriCredit. Those shared closed at $19.70 Wednesday. Shortly after midday Thursday, they were trading at $24.01, up $4.31 or about 22%.
The deal will enable GM to once again have an in-house financing arm. Before it was restructured in bankruptcy court as a company 61% owned by the federal government, GM directed its customers to captive lender GMAC. But GMAC is now Ally Financial, owner of online bank Ally Bank, and GM owns only about 7% of Ally. The U.S. Treasury owns more than 50%. It cannot lend to high-risk customers; the new GM cannot own a bank. Ally will, however, continue to finance GM dealer inventory and to lend to buyers with good credit.
GM said the acquisition establishes the core of a new captive financing arm that will expand financing opportunities for both AmeriCredit and itself. AmeriCredit is one of the few public companies that specifically target the subprime automobile loan market -- a niche that came under great pressure during the housing downturn.
The company generally charges higher interest rates in order to serve this lower credit market. It tends to have a higher level of credit losses than other auto financing companies as a result of its concentration on subprime, and it relies on securitizing auto loans to obtain funding.
Since the two companies launched a non-prime lending program in September 2009, GM's non-prime penetration has increased significantly, the automaker said.
The inability to easily offer loans to subprime buyers has hurt GM sales, according to Edmunds.com, which said that "deep sub-prime, sub-prime and non-prime new car loans collectively dropped 6.3% in the first quarter." During the same period, prime and super-prime loans collectively rose 1.4%, according to Experian.
"Today, most auto loans are going to buyers with good credit who qualify for a better rate," said Ivan Drury, industry analyst for Edmunds.com, in a prepared statement.
"In this depressed auto sales market, deep sub-prime and sub-prime borrowers represent a market that might help generate the increased sales volume
GM and Chrysler need to fuel their post-bankruptcy revivals," wrote Bill Visnic in a report for AutoOberver.com.
"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 CFO Chris Liddell.
The AmeriCredit management team will remain intact, GM said, and the firm will maintain its own direct access to the capital markets for its financing requirements. The deal, which requires approval by AmeriCredit shareholders, is expected to close in the fourth quarter.
-- Written by Ted Reed in Charlotte, N.C. with additional reporting by Laurie Kulikowski in New York.