GM, AmeriCredit Execs Discuss Acquisition
DETROIT — Following General Motors' announcement this morning that it is acquiring AmeriCredit, executives with the two companies participated in a conference call with analysts and media to shed some more light on the implications of the transaction.
GM's planned purchase of AmeriCredit — a deal meant to help the automaker meet consumer demand for leasing and non-prime financing — is slated to be an all-cash transaction for about $3.5 billion.
The deal came to fruition rather quickly, as officials noted on the call that the companies began talking roughly a month ago about augmenting their relationship. The companies rolled out a non-prime program together in September of last year.
"It came together very quickly and that's an example of the culture happening here," said GM vice chairman and chief financial officer Chris Liddell.
While GM will become the non-prime lender's parent company, the plan is for AmeriCredit to continue to serve the dealers it already works with, in addition to serving like a captive for GM.
"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," explained Ed Whitacre, GM chairman and chief executive officer in the statement this morning.
Rumors had been circulating for a while that GM might look into purchasing a lender to help drive sales penetration.
Basically, the acquisition will establish the core of a new GM captive financing arm that will enable the automaker to provide customers with a more complete range of financing options, while creating significant growth opportunities for both GM and AmeriCredit.
Since GM and AmeriCredit launched their successful non-prime program, GM's non-prime penetration has increased significantly, according to automaker officials.
Upon completion of the transaction, AmeriCredit will re-enter the leasing business which will provide expanded leasing availability for all GM customers.
The timetable for this re-entrance into the leasing segment will be "in the next year or so," Liddell said during the conference call.
"While AmeriCredit already has relationships with about 4,000 GM dealers, this transaction will enhance dealer receptivity and improve sales penetration rates through coordinated GM branding and targeted customer marketing incentives," according to the company's statement this morning.
Liddell pointed out that the automaker will continue to rely on Ally Financial and others for prime retail and dealer financing.
During this morning's call, Liddell pointed out that GM's leasing penetration is around 7 percent, with the overall industry being at 21 percent. The GM executive said the automaker views this as a chance to boost leasing penetration, and thereby lifting the automaker's sales.
Liddell stressed that he doesn't anticipate that GM will necessarily reach the 21-percent penetration level from its current rate, but to achieve a level "somewhere between these numbers" would be the automaker's goal.
As far as financing to non-prime customers, GM's penetration is currently at around 4 percent, and Liddell said the automaker is looking for a "modest increase" to 5 percent or 6 percent.
Continuing on, Dan Berce, AmeriCredit president and CEO, said in this morning's statement, "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 more than 11,000 dealers across the country we serve today. Long term, this transaction will deliver benefits to our dealers, customers and employees."
The AmeriCredit management team will remain intact, which is designed to help minimize integration risk and maximize opportunities.
Furthermore, Berce said during the call that as far as AmeriCredit's non-GM customers, "We're reaching out to them and assuring them that their relationship with AmeriCredit is very important."
With assets of about $10 billion, the acquisition of AmeriCredit poses minimal impact to GM's balance sheet, and does not change the automaker's objective of achieving strong investment grade status, according to officials.
Under GM ownership, AmeriCredit will maintain its own direct access to the capital markets for its financing requirements.
Under the definitive agreement, which has been approved by both sets of boards of directors, at closing, AmeriCredit shareholders will receive $24.50 in cash for each share of stock held as of the transaction closing date.
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.
As far as regulatory approvals, Liddell doesn't anticipate a bumpy road, noting that GM "expects all regulatory issues to be procedural."
Edmunds: Shoppers Hurting for Non-Prime Deals
This morning's news comes in the midst of an auto market where a large chunk of shoppers are having difficulty obtaining the loans necessary to finance new-vehicle purchases, said analysts with Edmunds.com.
The market has largely been geared toward the prime (or above) shoppers, leaving many customers "presumably shut out of the market."
Reaching out to deep subprime and subprime shoppers may be pivotal for GM and Chrysler in getting the necessary sales lifts to spark resurgence, one analyst wrote.
According to Experian, on average, there was a 6.3-percent year-over-year decline in the number of loans given to deep subprime, subprime and non-prime customers combined during the first quarter. Conversely, there was a 1.4-percent upswing in prime and super-prime loans.
Last month, new-vehicle loans had an average interest rate of 4.7 percent, versus an average annual percentage rate for auto loans of 5.9 percent last June, Edmunds.com research revealed.
Due to a large number of prime and super-prime customers getting financed, it has essentially pushed down the average APR on auto loans.
"Today most auto loans are going to buyers with good credit who qualify for a better rate, and that is lowering the average," shared Ivan Drury, industry analyst for Edmunds.com.
Bill Visnic wrote on Edmunds' AutoObserver.com: "Chrysler and GM are aware of this trend and are anxious to tap into buyers presumably shut out of the market because of their credit scores."
He added: "In this depressed auto sales market, deep subprime and subprime borrowers represent a market that might help generate the increased sales volume they need to fuel their post-bankruptcy revivals."