G.M. Buys a Subprime Lender for $3.5 Billion

Where did they get this money?????


DETROIT — General Motors said Thursday that it had agreed to buy a financing company, AmeriCredit, for $3.5 billion so it can lease more vehicles and increase sales to consumers with lower credit ratings.

The transaction, expected to close in the fourth quarter, gives G.M. a captive financing arm for the first time since 2006, when it sold control of GMAC Financial Services. G.M. recently considered starting a new financing arm or reacquiring GMAC, now known as Ally Financial, to strengthen its lending capabilities and to raise the carmaker’s value ahead of a public stock offering.

“Our dealers have been telling us that not having an in-house finance arm hurt our ability to finance certain loans and leases,” Edward E. Whitacre Jr., G.M.’s chief executive, said in a conference call. “It hurt our ability to meet rising customer demand for G.M. cars and trucks. Now we’re going to fix that.”

Shareholders of AmeriCredit, which is based in Fort Worth and has 3,000 employees, would receive $24.50 a share, a 24 percent premium over Wednesday’s closing price of $19.70. AmeriCredit was founded in 1992 and has assets of about $10 billion.

G.M. will use money from its cash reserves, which stand at more than $30 billion as a result of the aid it received from the federal government before and during last year’s bankruptcy.

“We’re in the fortunate position that we have a very strong balance sheet,” G.M.’s chief financial officer, Christopher P. Liddell, said. “That gives us the flexibility to do acquisitions like this.”

G.M. said its ownership of the company would have minimal impact on its balance sheet and would not detract from its goal of regaining a strong investment-grade credit rating. AmeriCredit will maintain direct access to the capital markets for financing requirements, G.M. said.

G.M. executives have been seeking ways to improve sales in North America, where its earnings have greatly improved, but market share in the United States remains below year-ago levels. Owning AmeriCredit would let the company offer more leases and approve customers that Ally or other banks might have rejected.

G.M. said its sales to customers with subprime credit ratings have increased “significantly” since beginning a program with AmeriCredit aimed at writing loans for shoppers in that category last September. Ownership of AmeriCredit, which already has a relationship with about 4,000 G.M. dealerships, “will allow us to provide a full range of financing alternatives for all customers throughout all economic cycles,” Mr. Liddell said.

General Motors said it would continue to use Ally Financial and other banks to procure financing for prime customers. The company still owns 9.9 percent of Ally; it was required under federal law to sell the rest of its stake so that Ally could convert itself into a bank. Ally also provides financing to customers of Chrysler dealerships.

Currently, subprime customers account for 4 percent of G.M. sales, in line with the industry average, but about 40 percent of the population has a subprime rating, Mr. Liddell said.

“At the margin those are very good sales,” he said. “An extra percent here and an extra percent there will make a big difference from a sales point of view.”

Only 7 percent of the G.M.’s vehicles are leased, compared with an average of 21 percent for the industry. G.M. and other automakers sharply cut back on leasing, which is more popular for upscale vehicles, when the credit markets tightened in 2008.

AmeriCredit’s chief executive, Daniel E. Berce, said the company did not plan to stop financing customers of G.M.’s competitors. G.M. currently accounts for 15 percent of AmeriCredit’s business.

Mr. Berce said most of AmeriCredit’s 800,000 customers had credit ratings of 500 to 650. A rating below 640, on a scale that ranges from 300 to 850, is generally considered subprime.