Thursday, July 22, 2010

GM Making Subprime Loans?

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.

5 comments:

Dr William J McKibbin said...

Let's face it, the "old guard" at GM needs to restart what they know works -- rebates, interest rate tricks, confusing prices -- that's how the US brands sell cars -- which is why I have never owned a US brand car in 35 years...

Dr William J McKibbin said...

As a kid in the 1960's, my late father and I labored endlessly on his Buick -- which is why I have never owned a US brand automobile in my entire life -- guess what, I haven't worked on a car since the 1960's...

陳水卉陳水卉 said...

Some people cannot see the wood for the trees.............................................................

承蘋承蘋 said...

Seeing is believing.百聞不如一見............................................................

resumedocket said...

Reading this post reminds me of my old room mate! He always kept talking about this. I will forward this article to him. Pretty sure he will have a good read. Thanks for sharing!


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