General Motors, in agreeing to acquire AmeriCredit Corp., has reshaped the auto finance landscape.
In this one move, GM solves its financing dilemma, freeing it from the whims of outside providers of financing and returning it to arguably its most profitable historical endeavor: vehicle finance.
Meanwhile, AmeriCredit jumps to the top of the auto finance heap with its marriage to GM. The venture gives it access to a deluge of applications, and offers a clean and profitable “capital event” for its senior management team and investors, both of which have been to the brink and back since the credit crisis began. This is a well-deserved reward for the ACF team. At the height of the credit crisis, there were obituaries prepared for the company. (Heck, we weren’t sure the company would make it at one point.) And now, the plumbest of plumb asssignments: captive finance arm for GM.
There were a host of auto finance companies pining for the GM captive business, including several major banks, who argued that their cost of funds would be lowest. Obviously, GM is betting that it can earn more from owning a captive than a finance partner can save it through more efficient funding. In fact, credit costs have remained sufficiently low so that even AmeriCredit has been able to originate at reasonable funding costs.
The silver lining for GMAC/Ally? That it executed its rebranding before the announcement and that it has had time to rebuild its business into something other than GM’s captive. Ally’s been originating at a torrid pace in recent months, and we believe GM-derived business is at least responsible for some of that. It remains to be seen just how much business Ally will lose to the new GM captive. GM officials in a call with analysts and media repeatedly stressed that the company would continue to work with Ally. We wonder whether that will hold true over the long term.
AmeriCredit, as GM’s captive, does face some challenges. It might be difficult for ACF to navigate the GM-captive push/pull. As a captive, it will be pressed to move the metal and forgo net interest margin, not a comfortable mindset for an enterprise that has been obsessively focused with profitability and earnings performance. Further, at the least, GM had a hand in GMAC’s implosion. While it is doubtful the new GM captive will venture as far from auto finance as did GMAC, there is the possibility of a certain imprudence that could dampen the end results for the new captive.
These are minor hurdles to AmeriCredit, a firm that has been steeled by the credit crisis. (We’ve had significant opportunity to work with AmeriCredit, which sits on Auto Finance News’s Auto Finance Council industry group.) Despite any potential political maelstrom as a result of buying a finance company –and a subprime lender, no less — while still on the government’s dole to the tune of a 61% stake in the company, GM has taken the bold step of returning to the finance arena. The company, and arguably the automotive industry, will be the better for it.