General Motors is buying AmeriCorp, a company that offers subprime loans (loans to those with poor credit), for $3.5 billion dollars. GM says the move is necessary to expand financing to those with subprime credit scores. 40 percent of Americans hold these subprime ratings, which are defined as a score below 620 on a 300 to 850 scale.
“Clearly there’s an opportunity to bring more people into our showrooms and help them with finance,” said Chris Liddell, GM’s chief financial officer. GM will also be able to offer more leases to customers, a major selling point for upscale brands like Cadillac and Buick, whose customer base tends to lease vehicles more than mainstream brands. Currently 7 percent of GM’s sales come from leases, compared to an industry average of 21 percent. GM rebranded their GMAC finance unit as Ally, and they will continue to provide financing for the bulk of GM’s customers.
Subprime auto loans are a staple of the used car market, especially independent dealers who offer “financing for anybody” and the infamous “good credit, bad credit, no credit” types of used car lots. By definition this group is the highest risk for loans, due to a history of poor repayment, defaulting or other unscrupulous practices. With 40 percent of GM owned by the U.S government, you have to wonder how much integrity both parties have in extending these loans to people after a similar form of these loans nearly caused a global economic meltdown.
Hit the jump to read the official press release
[Source: GM and Yahoo News]