GM to Acquire AmeriCredit LLC as Captive Finance Arm

In early May, rumors began circulating that General Motors Company was considering re-entering the captive finance business. Today GM announced that it plans to acquire AmeriCredit Corporation of a reported $3.5 billion in cash.

In a statement released today, GM said the acquisition of AmeriCredit “establishes the core of a new GM captive finance arm.” The statement went on to say that the acquisition will help GM offer auto leases and purchase loans to customers with less-than-perfect credit.

In May, three individuals familiar with General Motors Company’s business plan said the automaker was considering buying back its former financing arm, GMAC LLC. They said GM was also considering other options including starting a new lending arm and partnering with outside lenders to offer its customers more options for financing their new vehicle leases and purchases.

Buying back GMAC and starting up a new in-house financing unit proved not to be feasible according to individuals familiar with the matter.

GM also wanted to finalize a deal prior to taking the company public in the fourth quarter and the GMAC buy-back and start-up options would have taken much longer to complete.

AutoTrends principle and industry consultant Joe Phillippi said, “This helps GM finance less-than-perfect-credit buyers and God knows there’s plenty of them today with economic conditions as they are. A lot of people in the vast heartland of this country don’t have particularly great credit histories and that region has been the core of GM’s strength.”

According to GM chairman and CEO Ed Whitacre, “Adding AmeriCredit to our team will improve our competitiveness in auto financing offerings.”

The boards of both GM and AmeriCredit have approved the deal and the automaker expects the sale to be completed in the fourth quarter assuming it is approved by AmeriCredit’s shareholders.

The terms of the sale include GM paying AmeriCredit shareholders $24.50 per share in cash. On Wednesday AmeriCredit closed at $19.70 per share.

According to GM’s CFO Chris Liddell, about 4% of GM’s new car sales come from subprime borrowers while the industry-wide average is about 7%. Liddell also said about 7% of GM’s car sales come through its leasing programs compared with a 21% industry average. The new financing capabilities, he said, will allow GM to increase its penetration of both buying sectors.

“When you look at the population,” said Liddell, “about 40 percent falls into non-prime. Four percent of our sales are to non-prime customers. If you just hit a modest increase from 4% to 5%, it’s a significant number.”

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