Yesterday, GM paid $3.5-billion for Fort Worth, Texas sub-prime lending company, AmeriCredit. The deal, according to GM Vice President Steve Girsky, will provide financing for sub-prime car buyers, whom, he says, account for 40 percent of Americans, and for vehicle leases.
Edmunds Auto Observer says GM's leasing percentage is at 7 percent while the industry average is a hefty 21 percent.
In a follow-up article, Bill Visnic at Auto Observer claims the risk is low for GM, "Although AmeriCredit's focus is on financing auto buyers with below-prime credit, financing buyers in that segment - and those with even lower credit scores - does not necessarily bring outsized risk. According to data from credit-information company Experian Automotive, the industry repossession rate was well less than 1 percent in the first quarter this year."
But Washington isn't convinced.
Senator Chuck Grassley (R-Iowa) wrote, a letter on his website to the Special Inspector General for TARP detailing his problem. "..General Motors has announced it is paying $3.5 billion in cash to purchase AmeriCredit Corp....As you know, GM is a major TARP recipient that received a $49.5-billion taxpayer bailout. Most of that money has not been repaid." "Because taxpayers still have a large stake in GM, I ask that you conduct an inquiry into the level of due diligence and analysis that went into GM's acquisition. Specifically, what role did Treasury play in reviewing and approving the transaction? Over the long run, will the acquisition of AmeriCredit at the price paid by GM increase the likelihood that the American taxpayer will recover more of its money from GM than currently estimated? At a minimum, the American people deserve to know whether GM conducted an analysis of this acquisition with the best interests of the taxpayer in mind."
Those of you who've been following Ed Whitacre's career know him as a bit of an imperialist, having taken Southwestern Bell from a Baby-Bell Anti-Trust Spin off, to the top of the telecom world, eventually buying the parent company; A T & T. Ed likes big business to be big. Really big. GM's corporate bio for Mr Whitacre explains it like this, "Whitacre led then-SBC Communications (SBC) on a disciplined growth strategy and through a series of industry-changing mergers and acquisitions.."
The central debate seems to be this: Was $3.5-billion (some $800-million more than the street value of AmeriCredit) of GM's money better served buying a financial arm that could boost lagging sub-prime and lease sales, or would repaying the taxpayers be the wiser move?
inlinesix says:
10:43 AM, 07/23/10
I sure wouldn't have overpaid for a lending company that probably had issues stemming from its lending practices in the recent past. Could AmeriCredit really have been doing that well to pay big bucks for it?
Secondly, if GM buys a company they can change the company. They could restructure the acquired lender to make a good overall finance arm for GM customers. This buy might not have negative consequences in the future depending on new lending practices.
bodyblue says:
11:14 AM, 07/23/10
Complete and total BS ....it is not their money! God I hate GM and the bozos that run it. When they pay back the TARP funds then they can buy what they want.
jeepsrt says:
11:42 AM, 07/23/10
It's not our money either, they just printed it and gave it away. Also, when it is repaid it will just go to some other program and add even more to our national debt.
bodyblue says:
12:08 PM, 07/23/10
" they just printed it and gave it away"
Even worse they borrowed it from the Chinese.
stoppre75 says:
12:29 PM, 07/23/10
Senator Chuck Grassley can really go suck it. What happened to congress NOT running an auto company? i believe Obama clearly stated the government was not in the auto business.
With the majority sale of GMAC is does seem logical to purchase a financing company to help buyers obtain credit. Easier credit means more sales. Yes that's a double edged sword, but if the correct risk is priced into these loans then there is little downside to the acquisition. Most major manufacturers have in-house financing arm's and this will help GM become more competitive once again. It sounds like a risky move but I'm sure Whitacre knows a little more about it then the rest of us.
alman08 says:
12:58 PM, 07/23/10
AHHAHAHAHAHA @ GM
AAHAHAHAHAHAHAHA @ stoppre75
roadburner says:
05:19 PM, 07/23/10
"It sounds like a risky move but I'm sure Whitacre knows a little more about it then the rest of us."
GM had better hope Ed knows more about sub-prime lending than he knows about cars:
http://www.cbsnews.com/8301-503983_162-5077846-503983.html
canabacon says:
10:21 AM, 07/24/10
Hmmmmmm...Even auto companies with hundreds of billions of dollars banked, and already have their own world wide financial institute, do not dable in credit risks for a reason. let the sub-prime lenders do it and take the risk, if you want to offer lower rates, then don't sell off your own finance company. Who owns GMAC now anyways? the chinese or Daimler?
canabacon says:
10:21 AM, 07/24/10
Hmmmmmm...Even auto companies with hundreds of billions of dollars banked, and already have their own world wide financial institute, do not dable in credit risks for a reason. let the sub-prime lenders do it and take the risk, if you want to offer lower rates, then don't sell off your own finance company. Who owns GMAC now anyways? the chinese or Daimler?
jason31480 says:
09:18 AM, 07/26/10
bodyblue says:
12:08 PM, 07/23/10
" they just printed it and gave it away"
Even worse they borrowed it from the Chinese.
^^ Perhaps that is why GM is more successful in China. You gotta show your lender(owner) what you're worth.
lzks says:
09:41 AM, 07/26/10
Well, the whole point of the bail-out money was to keep GM workers employeed. Also, government trusted GM to take the best actions to increase the money flow - making people take money out of their banks and start spending money on the GM cars. If this can get people who were unwilling to buy a car to finance or lease a GM car, great. However, are people really not buying GM because they can't afford it, or because they don't want GM? See, the sort of people who cares about affordability just go for Hyundai or Kia (not to mention their new Assurance program really got sales going). So, what GM needed to do was to spend the money to try to appeal to those with alot of money. I believe there was a backstory to this. I mean, it's 800mil above the street price too. Someone needs to smack GM's head. (Again)