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GM Back in Auto Financing with AmeriCredit Buy

Cash transaction creates a new captive finance company at General Motors to provide more vehicle loans and leasing.

by on Jul.22, 2010

Is Whitacre creating his own empire, just as he did at SBC, in effect reassembling AT&T ?

General Motors Company and AmeriCredit Corp. (NYSE: ACF) today announced they have entered into an agreement for GM to acquire AmeriCredit, an independent – and more importantly successful – auto finance company in an all-cash transaction valued at about $3.5 billion.

The acquisition creates a new GM captive financing arm that will enable GM to provide potential customers with more credit options. GM claimed it would not change its current incentive plans in the U.S., which are among the industry’s highest. If true, this means that taxpayers would not incur increased costs from more of the kinds of subsidized financing that auto companies often use to bolster sales.

Thus far this year GM sales are not increasing as fast as the overall market. Auto companies continue to incur loses because of overly optimistic residual values for returning lease vehicles.

GM said it needs to provide financing to “non-prime” customers – 40% of the U.S. population but only 4% of its current car buyers – who are remain pariahs in the credit markets despite lavish taxpayer financed bailouts of Wall Street firms and big banks that totaled almost a trillion borrowed dollars  – and were designed to free up credit, according to the Obama Administration.

Under the terms of the agreement approved by both companies’ boards of directors, AmeriCredit shareholders will receive $24.50 in cash for each share of stock held as of the closing date, which is due by the end of the fourth quarter of 2010, pending various conditions, including the approval of AmeriCredit shareholders

GM’s proposed purchase price is about a 25% premium over AmeriCredit’s closing share price on Wednesday. AmeriCredit has traded for as high as $26.49 a share this year.

“Adding AmeriCredit to our team will improve our competitiveness in auto financing offerings, and I am very pleased to have them on board,” said GM Chairman and Chief Executive Officer, Ed Whitacre about the Texas based financing company.

Following Your Money!

GM claimed it will maintain its relationship with Ally Financial, the renamed GMAC, which is and now an independent taxpayer-owned company that provides retail and wholesale financing to GM and Chrysler Group. Currently GM has 57% of its transactions in the retail prime market through Ally and other banks, above the industry average of 53%.