August 14, 2010

“GM Deal Helps Bad-Credit Buyers”

The facts:
- GM fails. Heads for bankruptcy as a result of years and years of failed leadership and inability to create inspiration for their customers.
- They file for protection.
- Enter President Obama with $45 Billion in financial help in return for a 60% equity position in the company.
- GM is reported to have $30 Billion in cash at the moment. Hmmmmm what to do?
- GM buys Americredit for $3.5 Billion cash. Why? To offer financing for “sub-prime” car buyers. (Seriously, this is a critical piece of their growth strategy!)
- The winners: Americredit and credit risky car buyers
- The losers: taxpayers, GM employees and the few loyal customers GM has left.

What is the CEO Mr. Whitacre thinking? What are the new owners thinking? Take taxpayers money and enter the financial risk business? Too much cash creating illusionary thinking. Too much cash looking for a place to park.

If you need a financing capability for the sub-prime buyers (making the stretch assumption that this segment is worth chasing), why not partner with someone to share the risk? Or sub-contract it out to another company who is already in the business and let them take ALL the risk? In fact I don’t understand why target this segment at all.

Are these the people Ford and others don’t want to serve? How do credit risky people contribute to the Company’s bottom line as compared to “good” customers? How big is the segment relative to the other less credit-risky groups? How fast is it growing? How much Shareholder Value does it add? Does it give a better return on investment that taking the $3.5 Billion and investing it in other customer segments? I just don’t get it.

An Industry pundit is quoted to say “If managed properly, lending to non-prime and sub-prime customers can be a source of profitability for automakers, retailers and lenders.” The operative words here are ”... If managed properly…”Isn’t mis-management what got GM into the mess in the first place? Why should I believe they will get it right this time? Oh ya, I forgot. A new CEO and lots of cash.

Heads up people. I smell another fiasco on its way. This could be a good case study for the importance of WHO to SERVE.

Cheers, Roy
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Posted 8.14.10 at 07:00 am by Roy Osing | Read Comments (0) | Leave a Comment