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GM to Acquire AmeriCredit for $3.5 Billion

July 23, 2010
2 min to read


General Motors Co. has announced a return to auto lending with a deal to acquire AmeriCredit Corp., the largest provider of loans to car buyers with less-than-stellar credit, The Wall Street Journal reported.


The $3.5 billion deal gives GM an in-house lender for the first time since it sold control of its GMAC finance arm in 2006, leaving it the only major car maker without a finance unit.

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GM billed Thursday's move as a surefire strategy to win over more buyers by increasing the availability of vehicle leases and loans. It comes as GM prepares a return to the public stock markets as soon as this fall.


But the strategy comes with risks. By loaning to customers with somewhat lower credit scores, GM could be exposed to more bad loans. Leasing also has perils; auto makers lost billions on bad leases in 2008 when the auto market collapsed.


"Dealers and customers have said not having an in-house finance arm hurts our ability to offer loans and leases," GM CEO Edward E. Whitacre Jr. said in a conference call with analysts and media. "We were not as competitive as we could be."


With AmeriCredit under its control, GM can influence the lender's criteria for loans and have loan officers look more closely at customers who may be risks worth taking.


Chris Liddell, GM's chief financial officer, has the job of making sure AmeriCredit doesn't suffer the same fate as GMAC, which needed a $17 billion U.S. bailout in 2008 to stay afloat after racking up billion of losses on home mortgages and vehicle leases that went sour.

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AmeriCredit will stick to auto financing, Liddell said. The recently improved resale values of vehicles also should limit leasing risks, he said.


When a finance company underwrites a lease, it essentially buys the vehicle from the car maker and rents it to the customer. After the lease expires, the finance company sells the vehicle on the used market. If used-car prices plunge, the lender can suffer big losses.


In the past, GM also used cut-rate loans and leases to pump up sales because it was stuck with too many plants. After restructuring in bankruptcy court, GM reined in production and should face less pressure to take risks on financing to boost sales.


Liddell said he is confident AmeriCredit can sustain itself without funding from GM, though the car maker would help offset the cost of loans as it does with other lenders.

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