AmeriCredit’s Leasing Question Mark
There’s no question, AmeriCredit is one of the premier nonprime auto lenders in the nation. The company has weathered storms that have sunk many of its competitors. It has invested heavily in technology to bolster underwriting and risk-based pricing, and has a solid management team at the helm. It has treasure troves of historical data to help it map credit trends within its core customer base.
As such, the 20-year-old Fort Worth, Texas-based lender is an ideal partner for General Motors, which today announced that it would shell out $3.5 billion in cash — $24.50 per share — to buy AmeriCredit. Currently, GM has a 4% penetration rate when it comes to retail nonprime business. With about 40% of the population falling into the nonprime category, the acquisition certainly offers a ton of opportunity for GM.
What surprises me about the deal, though, is GM’s reliance on AmeriCredit as its primary leasing partner. Currently, GM has a 7% lease penetration; the industry average is 21%. While GM executives have made clear that they expect only single-digit growth in leasing in the next few years, that expectation translates to tens of thousands of leases. And while AmeriCredit has some experience in leasing, it’s quite limited.
AmeriCredit’s history in leasing stems from a short-lived alliance with Kia Motors America. Though available nationwide in early 2008, Kia leases were originated in only a handful of states, according to data from AutoCount, a unit of Experian Automotive. AmeriCredit originated 89 leases in February 2008, 8.5% more than it had in February 2007, according to AutoCount. Of the total, 81 of the February 2008 leases (91%) were originated in Minnesota.
And until the Kia arrangement was canceled in mid-2008 (due to lack of funding), leasing comprised a negligible percentage of AmeriCredit’s overall financing volume. For instance, AmeriCredit originated 1,868 loans — and a single lease — in Texas in February 2008, according to AutoCount.
Will GM benefit from AmeriCredit’s expertise in nonprime finance? Hands down, yes. Can the same be true of AmeriCredit as a leasing partner? I’m not convinced.
