GM to buy financing arm for 3.5 Billion

[bobthebilda]

http://www.marketwatch.com/story/gm-...k=MW_news_stmp

Well it looks like the process is beginning all over again at GM.

GM said the move, in conjunction with a program the two companies launched nearly a year ago, will help reach more subprime customers

Just the sought of customers a company in GM's position should be going after.

[mik]

seems strange that gm is surviving on borrowed money but they can fork out 3.5 billion for another company, you would think they should have to pay off their debt first.

[uranium_death]

Yeah...was wondering how a company that only recently declared bankruptcy is now forking out dollars for another company...

I would have thought that after declaring bankruptcy, their dealings would be restricted somewhat to ensure that they can repay their debt...

[SteveJH]

Subprime customers? Didn't they learn the lesson from when their housing market collapsed?

[SB076]

Doesnt make any sense to me - as to why they would a) go back into financing, b) get the funds to acquire another business.

[vztrt]

http://www.fordforums.com.au/showthr...14#post3237814

[Brazen]

Originally Posted by SB076

Doesnt make any sense to me - as to why they would a) go back into financing, b) get the funds to acquire another business.

Anyone who is anyone in the US car market provides finance to the customers. Over there a finance company and car maker go hand-in-hand because so many new cars are privately leased.

If the car-maker and finance arm are both owned by the same company then one aspect of transaction can run zero-profit so that the other arm can make a deal. Hence GM can offer very attractive lease deals to move metal - sure the finance deal makes little profit but the car-making side gets the cash. Gm lost this once they lost control of GMAC - no more Chevy Cobalt for $199 a month.

Also with no GM finance arm, each dealer basically has to arrange finance locally - there are no economies of scale in getting the finance for the dealers.

Its actually a smart move, and one I predicted they would do as soon as they had the cash to do it although I predicted they would buy back controlling interest in GMAC - but perhaps they thought there could be a public backlash from this as GMAC itself received a big bailout.

[SB076]

Originally Posted by Brazen

Anyone who is anyone in the US car market provides finance to the customers. Over there a finance company and car maker go hand-in-hand because so many new cars are privately leased.

If the car-maker and finance arm are both owned by the same company then one aspect of transaction can run zero-profit so that the other arm can make a deal. Hence GM can offer very attractive lease deals to move metal - sure the finance deal makes little profit but the car-making side gets the cash. Gm lost this once they lost control of GMAC - no more Chevy Cobalt for $199 a month.

Also with no GM finance arm, each dealer basically has to arrange finance locally - there are no economies of scale in getting the finance for the dealers.

Its actually a smart move, and one I predicted they would do as soon as they had the cash to do it although I predicted they would buy back controlling interest in GMAC - but perhaps they thought there could be a public backlash from this as GMAC itself received a big bailout.

I was under the impression the GM got rid of their financing arm during bankruptcy proceedings (cant recall if they did or didnt now) Wasnt their previous financing arm losing money -or did I misread that (I am going off memory here from media reports some time ago - so my information might be incorrect) If the above is correct - why would they want to go down the same path again? Granted as you stated its a way of moving metal, but its also providing exposure to subprime loans. Would they not be better off doing a deal with a financial instuition (and let them deal with the risks) and stick with building vehicles?

EDIT: Mind you I am sure numerous people have gone through the numbers and their must be a business case for it - otherwise they wouldnt do it.

[Brazen]

Originally Posted by SB076

I was under the impression the GM got rid of their financing arm during bankruptcy proceedings (cant recall if they did or didnt now) Wasnt their previous financing arm losing money -or did I misread that (I am going off memory here from media reports some time ago - so my information might be incorrect) If the above is correct - why would they want to go down the same path again? Granted as you stated its a way of moving metal, but its also providing exposure to subprime loans. Would they not be better off doing a deal with a financial instuition (and let them deal with the risks) and stick with building vehicles?

EDIT: Mind you I am sure numerous people have gone through the numbers and their must be a business case for it - otherwise they wouldnt do it.

Actually I believe GMAC was in fact profitable when GM initially sold their stake in it and were in fact were criticized for selling their stake. But when the GFC hit GMAC took a massive hit as the money GMAC was borrowing became a lot more expensive or dried up - no longer owned by GM, GMAC basically decided to cease leasing especially as all the end-of-lease SUVs were being returned to GMAC with residuals which had tanked - great for the leasees bad for the leasor.

I think the exposure of Subprime loans in auto financing is not so bad as the home market, leases are secured by the vehicle itself, the finance company remains the owner and can use the vehicle to recoup losses and can sue for any shortfall - cars are also quick and easy to sell. No recourse home loans are different, the home owners can walk away and there is no financial recourse leaving the mortgage company with the bill - and houses can be expensive and slow in selling.

Yeah its interesting, you think they would just hook-up with a Citibank or something and let them deal with the finance side, but it dosnt seem as simple as that. As soon as GM lost control of GMAC when the GFC hit, GMAC basically pulled or severly restricted leasing - overnight dealers were scrambling to local credit unions or banks to set up arrangements so that customers coming in could still lease. It has ended up being expensive for the dealers and customers and has resulted in a lot less GM vehicles being sold.

During that period Toyota Finance was offering 0% finance on new Toyotas as it was in-house to Toyota. GM cannot counter, they can hopefully negotiate with lenders to offer good deals, but in the end the lenders still want their cut of the sale.

[cycle myth]

This is a smart move and a good sign for GM and the US auto makers.

If they are thinking like this and this far ahead they have long term plans and putting the structure in place to do it.

Maybe the idea might catch on here............. but the penny won't drop I think.

[wrongwaynorris]

Gee what another stellar move , lets buy a finance company so it's inordinately easier to expose ourselves to high risk borrowers . This company should just be put into liquidation and end the bloody farce . The taxpayers of the US have every right to feel aggrieved after billions and billions and billions of there money has already bee frittered away on a lost cause . meanwhile Ford under Allan Mullaly just go about quietly achieving with out begging for scraps at the table of the US taxpayer .

[burnz]

Originally Posted by cycle myth

This is a smart move and a good sign for GM and the US auto makers.

If they are thinking like this and this far ahead they have long term plans and putting the structure in place to do it.

Maybe the idea might catch on here............. but the penny won't drop I think.

wasn't custom credit ford??
and GM holden credit card 20%??
http://www.westpac.com.au/personal-b...m-holden-card/

[cycle myth]

Originally Posted by burnz

wasn't custom credit ford??
and GM holden credit card 20%??
http://www.westpac.com.au/personal-b...m-holden-card/

Not sure about Custom Credit and Ford - I don't think so. The GM credit card by Westpac 20%? - probably thats a typical credit card rate.

......not sure of the relevance?

I can say though that a strong finance arm is important to a motor company.

It held Ford up through the tough time as is huge asset.

It gives strength to the Dealer body, provides retail support and other marketing avenues to sell more cars.

GM is stronger because of this - a smart move.