by Dennis “Cos” Costa
On Thursday, July 22nd, General Motors announced that they have entered into a definitive agreement to acquire AmeriCredit Corp. (NYSE: ACF) in an all-cash deal valued at ~$3.5 billion. AmeriCredit is one of the nation’s leading independent auto finance companies. This transaction will help General Motors meet customer demand for leasing and non-prime financing for GM vehicles.
The purchase of AmeriCredit by General Motors represents a return to in-house financing that is aimed at increasing the availability of loans and leases to customers. GM has had trouble providing loans to more customers, particularly those with weaker credit histories, and has stated that this represents a barrier to the company growing U.S. market share. It is also another step necessary to moving ahead with its planned initial public offering presumed to execute later this year.
“This acquisition supports our efforts to design, build and sell the world’s best vehicles by expanding the financing options we can offer to consumers who want to buy GM vehicles. Adding AmeriCredit to our team will improve our competitiveness in auto financing offerings, and I am very pleased to have them on board.”
Ed Whitacre, GM Chairman and Chief Executive Officer
The acquisition of AmeriCredit re-establishes this vital customer lending service, which was lost when GM sold the control of its finance arm, General Motors Acceptance Corporation (GMAC), now known as Ally Financial, back in 2006. GMAC’s application to become a bank holding company was accepted on December 24th, 2008 by the Federal Reserve, allowing GMAC to gain access to billions of dollars in government aid, in an attempt to ensure it own survival. Less than a week after becoming a U.S. bank holding company, the U.S. Treasury invested $5 billion, and after GMAC officially changed its name in May of 2009 to Ally Bank, the U.S. Treasury invested another $7.5 billion, making the U.S. government the majority stakeholder with ~57% ownership. In May 2010, GMAC announced that it had re-branded itself as Ally Financial Inc.
Ally Financial Inc. currently provides financing for GM and Chrysler Group LLC dealerships and their customers. This acquisition of AmeriCredit by GM may be problematic for Ally Financial Inc. The AmeriCredit acquisition,
“ ….. is more of a positive for GM than Ally. This is going to be a challengefor Ally, in terms of getting growth and restoring its own solid footing”
Kathleen Shanley, Analyst at GimmeCredit, Independent Research
This acquisition will establish the core of a new GM captive financing arm, which will enable GM to provide customers with a more complete range of financing options, while creating significant growth opportunities for both companies. This acquisition is seen as a result of GM and AmeriCredit’s successful launch of a non-prime program in September, 2009. Since that launch, GM’s non-prime penetration has increased significantly. This acquisition will also allow AmeriCredit the opportunity to also re-enter the leasing business, expanding leasing availability for all of GM’s customers. It is also projected that, while Americredit already has relationships with over 4,000 GM dealers, this transaction will enhance dealer acceptance and improve sales penetration rates through a coordination of GM branding and targeted customer marketing.
“With AmeriCredit providing us niche capabilities in leasing and non-prime financing, along with the continued strong support of Ally Financial and others for prime retail and dealer financing, we’ve set up a very competitive solution for our financing needs, which will be resilient through credit and business cycles”
Chris Liddell, GM Vice Chairman and Chief Financial Officer
Under the terms of the agreement, already having been approved by both company’s boards of directors, the AmeriCredit management team will remain intact, which will assist in minimizing intergration risk and maximize opportunities between the two companies. Shareholders of Americredit will receive $24.50 in cash for each share of stock held as of the transaction closing date.
“We’re excited about joining the GM team. While we will be expanding our product set to more fully support GM, we’ll continue to offer our loan products to the more than 11,000 dealers across the country we serve today. Long term, this transaction will deliver benefits to our dealers, customers and employees.”
Daniel Berce, AmeriCredit President and Chief Executive Officer
The transaction is expected to close by the end of the fourth quarter of 2010, pending certain closing conditions, including the approval of AmeriCredit shareholders.
Position: None in any company mentioned.
Contact the Author: denniscosta@marketplayground.com
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“ ….. is more of a positive for GM than Ally. This is going to be a challenge for Ally, in terms of getting growth and restoring its own solid footing”
That pretty well sums it up. An acquaintance of mine that works at Ally’s Detroit Headquarters mentioned that they have been slow to move towards increasing the approved loans that had below a 660 beacon score. They are trying to operate in the prime arena but their rates are 2 points higher than their competitors. I suppose GM thought Americredit had the tools & staff to approve and book similar deals. Things are tough for the employees side of the business as well; retirements,resignations, pay reductions to one segment of the auto finance unit and discourse between the departments. There’s a lot of good, knowledgeable, auto-experienced employees who would be an assest to your company. Especially to those that may have something in the works with GM> Could it be Chase or Wells Fargo.