GM's purchase of AmeriCredit will permit it to create a new "captive finance" subsidiary.
With the $3.5 billion purchase of lender AmeriCredit, General Motors plans to create a new, in-house financing arm, GM Financial, to replace the “captive” lender long known as General Motors Acceptance Corp.
The Detroit automaker was recently rebuffed in its bid to regain control of GMAC, now known as Ally Financial. Having a wholly-owned financing unit, GM believes, can help enhance its ability to sell cars, trucks and crossovers while providing an additional profit center of its own.
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“This acquisition allows GM to offer an enhanced range of solutions for our customers and dealers, and establishes an important strategic capability for GM,” said GM Vice Chairman and Chief Financial Officer Chris Liddell.
The former GMAC, now called Ally Financial, rejected a bit to regain control by General Motors
Today, most of the major automakers operating in the United States operate captive finance arms, but GM, one of the first to get into automotive lending, decided to sell off a majority stake, in 2006, to the equity giant, Cerberus Capital Management. The latter company saw GMAC as a key part of its move into the automotive sector – a strategy that included buying Chrysler from Germany’s Daimler AG.
Cerberus was eventually forced to put Chrysler into bankruptcy, ultimately relinquishing control over the troubled maker. And its relationship with GM soon soured, reaching a low point after it transformed GMAC into Ally Financial and decided not to sell the operation back to GM.
Like GM and Chrysler, Ally survived the U.S. financial meltdown only with the assistance of a federal bail-out – though it was able to avoid filing for Chapter 11 protection. The lender, however, sharply cut back on the availability of automotive financing, all but dropping out of the leasing market in mid-2008. With only the most trustworthy consumers winning approval for loans, GM estimated it was losing 10s of thousands of possible sales.
While GM is still required to work with Ally on some forms of lending, it will regain the ability to work with other banks – and the new GM Financial, starting January 1, 2011. As it has loosened credit requirements and re-entered the leading market, the former GMAC has seen its share of financing for 2010 grow to 36% of General Motors U.S. and Canadian retail sales. That’s up from 28% in 2009, but the share of GM dealer inventory financed – or floor plan in automotive lingo – has fallen from 92% to 86% over the same time period.
Ally has approximately $10 billion in assets.