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. AmeriCredit is an independent auto financing company that already works with about 4,000 GM dealers.
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. About 40 percent of U.S. customers have below prime credit scores, said Chris Liddell, GM's chief financial officer.
"Clearly there's an opportunity to bring more people into our showrooms and help them with finance," he said.
Liddell said 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.
The deal allows the auto financing company to expand into more GM dealers, while continuing to offer financing to the more than 11,000 dealers it already has relationships with.
GM has had a financial relationship with AmeriCredit for years, and it was formalized in September of 2009. AmeriCredit now gets about one-third of its business from financing new and used GM vehicles, GM said.
AmeriCredit, which was founded in 1992, has about 800,000 customers and $9 billion worth of auto loans on its books.
GM expects the deal to close in the fourth quarter. It said it advised the U.S. Treasury Department of the acquisition but government approval was not required.
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.
Liddell said the acquisition is a helpful, but not essential for GM's planned public stock offering. The company plans to sell stock to the public, perhaps in the fourth quarter. The sale would help the government get rid of at least part of its ownership stake in the company.
"I'll describe it as another useful building block in the foundation for the IPO," Liddell said.