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GM Rebuilds Credit, Readies IPO

July 26, 2010
3 min to read


General Motors Co.'s acquisition of subprime lender AmeriCredit Corp. for $3.5 billion later this year could be the first step toward creating a full-blown captive finance company, Automotive News reported.


AmeriCredit lacks the capital of other automakers' finance arms, and it's primarily a used-vehicle lender serving borrowers with risky credit. But GM praised its strong management and staying power, calling AmeriCredit the "core" of GM's in-house finance operation.

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GM now has Ally Financial Inc., formerly GMAC Financial Services, for floorplanning and most prime financing and AmeriCredit for some leasing and to buy deeper to serve customers with lower credit scores. This gives GM dealers nearly the coverage that Ford Motor Co. dealers get from Ford Motor Credit Co.


The AmeriCredit acquisition will allow GM to sell more vehicles in North America -- perhaps as many as 20 percent more, some analysts say -- because dealers say Ally hasn't been buying very deep.


The new finance arm will improve GM's "competitiveness in auto finance offerings," CEO Ed Whitacre said in a conference call announcing the purchase last week. The move also strengthens GM's position to launch an initial public offering.


The Reuters news agency reported last week that GM plans to file its registration for an IPO during the week of Aug. 16, just after the date that GM is expected to announce second-quarter results.


Besides possibly allowing GM to sell to more people, a captive can generate its own profits. For example, Ford Credit reported second-quarter pretax operating profits of $888 million.

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GM's deal with AmeriCredit came as Ford Credit ran into a temporary financing roadblock.


According to The Wall Street Journal, the Ford captive pulled back a scheduled sale of bonds backed by auto loans in the wake of financial reforms signed into law last week by President Barack Obama.


In a statement, Ford Credit declined to comment.


Such asset-backed bonds, used to raise funds for future lending, are legally required to have credit ratings attached. But rating agencies -- including Moody's, Standard & Poor's and Fitch -- now refuse to allow their ratings to be published, although they continue to make ratings as part of the bond offering. The agencies are reacting to new regulations that make it easier for investors to sue them.


The issue had threatened to freeze such bond sales. But on Friday, July 23, the Securities and Exchange Commission issued a "no action" letter allowing asset-backed bond sales without credit ratings for six months. The Securities Industry and Financial Markets Association credited the move with "avoiding the potential for negative impact on the availability of financing."

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For now, the planned acquisition of AmeriCredit leaves GM's partnership with Ally intact, assuring a continuation of floorplan financing for GM dealerships.

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