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GM buys subprime auto loan firm

By Claes Bell · Bankrate.com
Thursday, July 22, 2010
Posted: 4 pm ET

If your credit is less than perfect, finding an auto loan to buy a GM vehicle may just have gotten easier.

General Motors announced this morning it is acquiring AmeriCredit, a Texas-based subprime lending company specializing in auto loans. From GM's perspective, the acquisition makes sense. The company announced last month it was "developing relationships with other financial sources." And GM had been working with the lender since September of last year on a subprime lending program for its dealers.

This is good news for the many borrowers with banged-up credit that have been rejected for a new auto loan in the last few years. This move signals the company is willing to put up with financial risk in order to move its vehicles off dealer lots, so that should push the percentage of subprime borrowers who get loan approvals way up.

GM dealership in Highland, Mich. courtesy of General Motors

GM dealership in Highland, Mich. courtesy of General Motors

But for taxpayers, I'm not so sure it's a great thing. GM will pay $3.5 billion in cash for the company, which isn't a lot by their standards, but after what happened with GMAC, which had to be bailed out by the federal government at a cost of 17 billion taxpayer dollars, the idea of the auto giant getting back into the business of financing is a little scary.

In the short term, it's probably going to work out; the problem right now is that there's not enough credit being extended to people that want to buy things, so GM greasing the wheels with a little bit of money to buy its products will probably be a good thing.

But what if their lending business takes off in the future and GM bets progressively larger amounts on bad loans, as it did in the mid-aughts? I'm not so sure lending is a business GM should be in. Even if they're able to pay back the money loaned to them by U.S. taxpayers, who's to say they won't make the same mistakes again and end up needing another giant bailout down the road? And maybe I'm crazy, but I think that $3.5 billion in cash could have found a better home in Treasury coffers instead.

What do you think? Is this move just good business, or is it irresponsible?

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2 Comments
Elizabeth Gayle
July 26, 2010 at 3:18 pm

This will hurt small, non-BHPH, used car dealers. This will hurt small, BHPH, used car dealers. This will hurt all independent used car dealers.