General Motors has been negotiating with financial institutions to broaden their availability of auto loans and it was just announced that GM has agreed to buy AmeriCredit for $3.5 billion. The primary purpose of the acquisition is to be able to provide financing to less-creditworthy customers. AmeriCredit provides financing for consumers indirectly through auto dealers.
Under General Motors’ government-backed restructuring agreement, it cannot own a bank. A year ago, GMAC (originally an acronym for General Motors Acceptance Corp) re-branded itself as Ally Financial, in an attempt to distance itself from General Motors. Ally is now majority-owned by the U.S. government and provides financing for GM, Chrysler Group and their customers. Banking regulations prevent Ally from aggressively competing for high-risk customers with poor credit history.
After the subprime mortgage collapse, many people are now being turned away for credit since lenders are tightening their credit standards. GM and AmeriCredit may be able to help fill that need not only for new auto loans, but also auto leases. The Kansas City Star reports that consumers can now expect to see more leases offered by GM. While leases account for 21% of industry sales, GM currently only has 7% of its sales from leases. That will change with the acquisition of AmeriCredit.
Not everyone thinks this acquisition is a good idea, however. Law Professor Steven M. Davidoff writes in his New York Times blog that, among other problems, providing cheap credit to subprime borrowers will exacerbate long-term economic problems since it encourages over-consuming.
It is clear the verdict is still out. What are your thoughts on the issue? Please feel free to post your comments.
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