Forbes reports that General Motors has agreed to acquire AmeriCredit, an automobile financing company. Here is how Forbes explained the deal:
GM executives have said for months that they were missing sales opportunities due to lack of credit for lease deals and financing for subprime buyers, those with credit scores below 620 on a 300-to-850-point scale. About 40 percent of U.S. customers have below prime credit scores, said Chris Liddell, GM's chief financial officer. "Clearly there's an opportunity to bring more people into our showrooms and help them with finance," he said after the deal was announced on Thursday.
Hmmm... Let's put aside the issue of sub-prime lending for a moment (I know, you are probably shaking your head at those comments!). The article goes on to explain that, "The two companies have had a financial relationship for years. AmeriCredit, which already works with about 4,000 GM dealers, now gets about one-third of its business from financing new and used GM vehicles, GM said." That comment actually intrigues me, because one has to then question why GM needs to acquire the firm in order to accelerate sales. When a merger occurs, we should always ask: Why do these firms need to join together to cooperate? Why would a simple contract not do the job just as well? In this case, these firms appeared to be cooperating and working together quite a bit. What is it about that arrangement that was insufficient? Why the need to now merge? Perhaps there is a very good explanation, but I didn't see it in this article.