GM To Help More Bad Credit Car Loan Buyers By Purchasing AmeriCredit To Lend More Subprime Loans
GM has taken a fresh step in helping those who have bad credit obtain a car loan. This deal would help GM to offer loan to a substantial number of people in the market for a car loan. Owing to the credit crisis there are a larger number of Americans below sub-prime credit rating, many of them hardworking, decent Americans who are willing and able to pay their bills on time. GM purchase of AmeriCredit gives it a strong foothold into the sub-prime market and an ability to help bad credit car buyers.
According to NADA more than 94% of all vehicle purchases last year involved some form of loan financing, so there are great opportunities for GM in this market. Initially GM considered the repurchase of GMAC its financial arm before the unfolding of the credit crisis. GMAC generated revenues of over $653 million in the first quarter of this year. In the end GM considered AmeriCredit which appears to have a stronger loan / credit division
The Marriage Between GM & AmeriCredit
The number of bad credit car loans such as bad sub-prime (credit rating below 650), sub-prime and non prime auto loans dropped about 6.3 percent in the first quarter, while encouragingly, prime and above prime or super prime car loan increase to 1.4 percent as compared to the same period of 2009. These are positive signs of improvement in the loan and credit aspect of the economy
Interest on new car loans was 4.7 percent as compared with an interest of 5.9 percent in the same time of 2009. This is so with new cars, as customers take advantage of zero percent loans that GM and other auto manufacturers are offers. However, with sup-prime or bad credit car loans , interest can go as much as 15 percent, generating serious income for GM and other auto markers with in-house financing capabilities
The deal to purchase AmeriCredit is worth $3.5 billion in cash and will be finalized in the fourth quarter of 2010
With sup-prime of bad credit car buyers an estimated 40 percent of the car buying market, GM foresees the great opportunity to captivate market share. GM is not the only auto maker that has taken note of the credit dynamics. Chrysler has created a relationship with Santander Bank USA to process loan for sub prime bad credit car buyers, stating that sub-prime buyers are about 20 percent of its market.
