AmeriCredit Corp. began in 1992 with a mission to provide subprime financing nationwide as an alternative to the portfolios of captive lenders that preferred prime-rated buyers and products of their parent auto makers.
But now, one of those auto makers, General Motors Co., is purchasing AmeriCredit for $3.5 billion in an effort to better reach subprime customers, making up nearly 30% of the U.S. credit market.
Since the auto maker emerged from bankruptcy last year, GM executives and dealers have fretted over the inability to finance customers with relatively low credit scores. Acquiring AmeriCredit is expected to solve that problem. GMAC, no longer a GM subsidiary, has shown limited interest in being a subprime player.
Based in Fort Worth, TX, AmeriCredit filled a niche in the subprime market that accompanied the growth in vehicle leasing and expedited sales of vehicles.
It hasn't always been easy. Chairman and co-founder Clifton Morris says the company experienced some troubling periods, especially when auto sales slumped.
But he adds: “We had a business model which endured even in recession periods when payment delinquencies and repossession rates grew. Dealers came to trust us for being so stable, as was the case in the GM and Chrysler bankruptcy periods.”
GM says one of the things that attracted it to AmeriCredit was the lender's ability to operate under last year's dire circumstances.
In the early years, AmeriCredit provided financing (at an interest rate of between 10% and 23%) to clients with credit scores of as low as 500, opening the door to customers who previously had been denied loans.
The company's revenues escalated in the 1990s and early 2000s, reaching annual revenues in the $2 billion to $3 billion range and net profits around $70 million as recently as 2008.
AmeriCredit pioneered opening local offices for auto-loan payments, although later it closed most of those branches to offset income shortfalls when vehicle sales declined.
“What's good about AmeriCredit in their admirable dealer relations is promptness in paying,” says Gordon Stewart, owner of six GM dealerships in Florida and Michigan. “When GMAC turned off the leasing tap in 2008 and raised the credit scores for qualifying for new vehicles in 2009, AmeriCredit was the only independent lender who took deals.”
AmeriCredit's CEO and former chief financial officer, Daniel Berce, is one of many younger finance experts that have joined the company over the years.
Under Berce, AmeriCredit has boosted total assets to $16.5 billion and its GM dealer portfolio to about 5,000.
About 15% of AmeriCredit's revenues come from GM dealers and their customers. Currently, most of the lender's 800,000 accounts are with non-GM dealers. Berce says that will change with the firm's new role as a GM captive.
What convinced AmeriCredit to accept GM's buyout offer and give up its status as the nation's largest independent subprime lender?
The time was right and the offer too good to refuse, says Morris, one of AmeriCredit's largest shareholder.
“You get only one chance to do something like teaming up with a powerhouse like GM, so we had to take it,” he tells Ward's.