DETROIT ( TheStreet) -- General Motors is hoping to enable customers with lower credit scores to buy its vehicles with its planned acquisition of subprime auto lender AmeriCredit ( ACF). 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.
Neil Barofsky, TARP's special inspector general, estimates the government will need to sell its common stock holdings in GM for a little less than $134 per share in order to recoup its investment in the iconic car company.