The $3.5 billion deal for General Motors Co. to acquire subprime lender AmeriCredit Corp. later this year is expected to be the first step to establishing a full-scale captive finance company. AmeriCredit, which is a used-vehicle lender serving borrowers with risky credit, doesn't have the capital of the finance arms of other automakers.
Nonetheless, GM cites AmeriCredit's management and staying power, describing the firm as the "core" of GM's in-house finance operation.
For floorplanning and most prime financing, GM now has Ally Financial Inc., formerly GMAC Financial Services. GM turns to AmeriCredit for leasing and to be able to serve customers with lower credit scores. This provides GM dealerships with almost the same coverage that Ford Motor Co. dealers receive from Ford Motor Credit Co.
Acquiring AmeriCredit acquisition will enable GM to sell more vehicles in North America. Analysts see that this acquisition will increase sales by as much as 20% more since dealers say that Ally hasn't been buying very deep. In a conference call announcing the purchase last week, CEO Ed Whitacre said that the new finance arm will improve GM's "competitiveness in auto finance offerings."
The move also serves to reinforce GM's position to launch an initial public offering. Reuters reported last week that GM aims to submit its registration for an IPO in the week of Aug. 16, immediately after the date that GM is scheduled to release second-quarter results.
Aside from enabling GM to sell to more people, a captive finance company can generate its own profits. For instance, Ford Credit posted second-quarter pretax operating profits of $888 million. [via autonews]