GM to buy AmeriCredit to expand subprime lending

July 22, 2010 6:58:29 AM PDT
General Motors Co. will buy AmeriCredit Corp. for $3.5 billion, a deal that allows the automaker to expand loans to customers with poor credit and offer more leases, key areas where GM must grow to accelerate its car sales.

But the acquisition, announced Thursday, also means that GM, which is 61 percent owned by the U.S. government, is getting back into the business of making risky loans.

GM executives have said for months that they were missing sales opportunities due to lack of credit for lease deals and financing for subprime buyers, those with credit scores below 620 on a 300-to-850-point scale.

GM Chief Financial Officer Chris Liddell said Thursday that customers could now expect more lease deals from GM. Only 7 percent of its sales are from leases, compared with 21 percent for the industry, he said. Only 4 percent of GM's sales come from subprime buyers, which the company hopes to expand with its AmeriCredit acquisition.

"If you just had a modest increase from 4 to 5 percent, that's a significant number in its own right," Liddell told reporters.

GM sold just over 1 million vehicles in the U.S. during the first half of the year.

The Detroit automaker will pay $3.5 billion in cash to buy all of the Ft. Worth, Texas-based AmeriCredit's shares at a price of $24.50 each - a 24 percent premium over Wednesday's close.

GM expects the deal to close in the fourth quarter.

The automaker says that its partner Ally Financial - formerly known as GMAC Financial Services Inc. - will continue to finance GM's dealer inventory and make loans to buyers with good credit.

GM says it is not considering a purchase of Ally's auto financing unit. GM sold controlling interest in GMAC in 2006. The company eventually had to be bailed out by the U.S. government because of problems with its home mortgage loan unit.