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AUTOS: GM, AmeriCredit Deal Opens New Market
Lack of in-house financing had been costing new-vehicle sales, according to dealerships.
Bengt Halvorson  | http://thecarconnection.com  |  Posted July 26, 2010   Detroit, MI
Sales of such moderately priced cars as the Chevrolet Malibu are directly effected by the availability of subprime credit and leasing. (Photo: Chevrolet)
General Motors last week acquired subprime lender AmeriCredit as part of a $3.5 billion deal that will help extend loans and leases to those with blemished credit.

Before you say "here we go again" and work yourself into a frenzy thinking that government-owned GM shouldn't go into the business of selling and leasing cars to those who can't make good on a loan, keep in mind that the meaning of subprime is very different than it was a couple of years ago.

Overall, the deal establishing AmeriCredit as an independent subsidiary – a different arrangement than GM's formerly held GMAC arm – was the result of complaints from GM dealers who complained that the lack of in-house financing was hurting sales.

The arrangement will allow GM access to about 20 million U.S. consumers and probably about two to three million legitimately qualified, potential new-car shoppers, said Jesse Toprak, the vice president for industry trends at TrueCar.

"It could make a huge difference," Toprak said, and could help stimulate portions of the new-car market that have been lagging.

The subprime market has been growing exponentially due to the economic downturn, Toprak said. According to some accounts, 40 percent of all Americans are now considered subprime.

The AmeriCredit deal will open access to affordable finance options for those with credit scores in the 620 to 699 range, a crowd of people who would have had no problem securing the best loans before the downturn but who now are shut out of some of the good deals. These are largely households that have missed a few mortgage or credit-card payments.

For subprime shoppers, $15k to $30k is the sweet spot for vehicle prices, said Toprak, so it could push-start sales in the middle of the market, especially for mid-size vehicles such as the Chevrolet Malibu and Chevrolet Equinox. Recently, the premium end of the market has been doing all right; those with money are purchasing luxury models at a discount while the mainstream market lags.

Leasing has also become a more popular option since the downturn, growing to 20 percent of the market today from eleven percent a couple of years ago, Toprak says, and the AmeriCredit deal could give GM greater access to that option for consumers who have decent but not stellar credit scores.

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