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As GM Dips Back Into Subprime Lending, Will The Deals Get Better?

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General Motors today acquired subprime lender AmeriCredit, as part of a $3.5 billion deal that will help extend loans and leases to those with blemished credit.

Before you say "here we go again" and work yourself into a frenzy thinking that government-owned GM shouldn't go into the business of selling and leasing cars to those who can't make good on a loan, keep in mind that the meaning of subprime is very different than it was a couple of years ago.

Overall, the deal, establishing AmeriCredit as an independent subsidiary—a different arrangement than GM's formerly held GMAC arm—came due to a rising tide from dealerships, who complained that the lack of in-house financing was affecting sales.

The arrangement will allow GM access to about 20 million U.S. consumers and probably about two to three million legitimately qualified, potential new-car shoppers, estimates Jesse Toprak, the vice president for industry trends at TrueCar. "It could make a huge difference," he said, and could help stimulate portions of the new-car market that have been lagging.

Toprak says that the subprime market has been growing exponentially due to the economic downturn.

According to some accounts, 40 percent of all Americans are now considered subprime.

The partnership will open up access to affordable finance options for those with credit scores in the 620 to 699 range—a crowd that would have had no problem securing the best loans before the downturn but one that's now shut out of some of the best deals. These are largely households that have missed a few mortgage payments or credit-car payments.

2010 Chevrolet Equinox LTZ

2010 Chevrolet Equinox LTZ

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For subprime shoppers, $15k to $30k is the sweet spot, said Toprak, so it could push-start sales in the middle of the market, especially for mid-size sedans like the Chevrolet Malibu and Chevrolet Equinox. Recently, the premium end of the market has been doing alright, as those with money are purchasing true luxury models at a discount, while the mainstream market has lagged.

Leasing has also become a much more popular option since the downturn—from about eleven percent of the market a couple of years ago to 20 percent today—Toprak says, and the deal could also give GM greater access to those options for consumers who have decent but not stellar credit scores.

[General Motors; TrueCar]

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