General Motors Co., the automaker 61 percent owned by the U.S., is buying subprime lender AmeriCredit Corp. for $3.5 billion to help it reach more customers with leases and loans to borrowers with faulty credit records.
The price of $24.50 a share is 24 percent more than Fort Worth, Texas-based AmeriCredit's closing price yesterday of $19.70 a share in New York Stock Exchange composite trading. AmeriCredit rose to $23.91 at 4 p.m.
"This helps GM finance less-than-perfect-credit buyers and God knows there's plenty of them today with economic conditions as they are," said Joe Phillippi, principal of AutoTrends, a consulting firm in Short Hills, New Jersey. "A lot of people in the vast heartland of this country don't have particularly great credit histories and that region has been the core of GM's strength."
GM had considered buying back its former lending arm, GMAC LLC, starting a bank or working with outside lenders to offer customers more financing options, three people with knowledge of the discussions said this month. Buying GMAC, now called Ally Financial Inc., or starting an in-house banking unit proved too difficult at that point, they said.
As long as GM is majority-owned by the U.S., it shouldn't be in the subprime lending business, said John Berlau, a policy director at the Washington-based Competitive Enterprise Institute, which promotes limited government.
"When we bailed out GM, what were we bailing out?" Berlau said. "The rationale behind the financial-regulatory bill that just passed was that subprime lending was bad, but the government's in the subprime business."
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