In July, we learned that General Motors is purchasing AmeriCredit, a major subprime auto lender. At that time, my colleague Megan McArdle wondered what GM would want with a finance company that caters to borrowers with spotty credit histories. I echoed that curiosity, but explained that subprime auto lending isn't as bad as it sounds. In his New York Times column today, Andrew Ross Sorkin suggests an answer: perhaps GM wants to make sure everyone who wants to buy one of its vehicles is able to do so, no matter how bad their credit. He worries that the automaker has purchased AmeriCredit so that it can weaken the lender's underwriting standards and inflate its own sales at a dangerous cost.
Sorkin may, very well, be correct. His logic certainly makes sense. But I really want to believe he is wrong. After speaking at length with GM employees several weeks ago at a Chevy Cruze event, I got the feeling that the company is very serious about creating a "new" GM. Would its management really return to the sorts of questionable strategies that hurt the company in the past?
Sales Won't Be Limited By GM's Future Bankruptcy Risk
But why else might GM purchase AmeriCredit instead of just developing an alliance with the lender? There's one key possibility. By financing its vehicles itself, GM doesn't have to worry about nervous lenders limiting its sales if they are scared of its vehicles due to the company's instability.