GM seeing an opportunity

 

Since 2007, when GM had to sell their financing company, GMAC, they have had a somewhat tougher time leasing and selling their vehicles to people with less than optimal credit. In the past when they owned their own financing company, they were able to approve customers that had a bad credit rating which was caused by a single bad account that a person had with a company. These customers are historically a low risk for car companies like GM. However, when they sold GMAC, the banks they worked with were not as lenient to their customers.

With the help of government funding, as well as a much improved company overall, GM now has a lot of money to play with. They actually have about $30 billion of cash on their balance sheet, which is nothing to shake a stick at. The biggest advantage large sums of money provides is opportunities. Realizing that they can be selling more cars to more people if they owned their own financing firm, GM said on Thursday that they have acquired such a company called AmeriCredit for $3.5 billion.

With this purchase, some experts say that their sales can increase by as much as 20% if they focus on sub prime customers (perhaps not something they should do too much of). Although some people think that GM should not be spending money buying up companies before they pay back all the money the government invested in them, this acquisition is important for them to compete. Without their own financing company, they would have a tough time truly competing with Ford, Toyota and most other carmakers because they simply would not be able to sell to the same amount of people that those other companies could. The fact that they see a need to buy this company signals that demand for their vehicles is growing which bodes well for all the taxpayers’ investment anyway.

GM is starting to be a bigger player in China than in the U.S., but the North American market is still crucial for them and will likely remain so for the foreseeable future. It is interesting to see how GM is perceived in China these days though. Their Buick brand may be the most liked car brand in China, even more than Toyota. GM is even thinking of launching an additional brand for the Chinese market to focus on inexpensive cars, which is the exact opposite strategy that GM has implemented in North America. GM is taking advantage of the opportunity that has been created partially for them (via taxpayers) and partially by them (good brands, the right strategies). Perhaps next year we will see if this purchase helps them become the top selling carmaker in the world once again.