No Wonder GM Is Still Flailing About

GM is buying a lender to reestablish an in-house lender after it dumped GMAC and all of its liabilities under the bankruptcy reorganization efforts. On its face that would appear to be good news, but dig a little deeper.

Under the terms of the deal, G.M. will pay $24.50 per share, a 24 percent premium to AmeriCredit’s closing share price of $19.70.

The move could help strengthen the prospects of a G.M. initial public offering, which the company plans to hold to begin disposing of the government’s majority stake. The car maker has already hired Morgan Stanley and JPMorgan Chase to lead the effort, and it could file for an initial offering as soon as August, DealBook previously reported.

By reestablishing an in-house lender, G.M. believes it will be able to sell more cars by providing lease financing and loans for customers with subprime credit ratings.

G.M. is no stranger to AmeriCredit: the firm already has relationships with about 4,000 G.M. dealers.

“This acquisition supports our efforts to design, build and sell the world’s best vehicles by expanding the financing options we can offer to consumers who want to buy G.M. vehicles,” Edward E. Whitacre Jr., G.M.’s chairman and chief executive, said in a statement. “Adding AmeriCredit to our team will improve our competitiveness in auto financing offerings, and I am very pleased to have them on board.”

GM is looking to expand its sales through expanded in-house leasing offerings to subprime borrowers? I'm sure that's a recipe for financial strength and solvency. The reason GM went under was due in part to subprime borrowing and the fact that many of those subprime borrowers could not repay their mortgages to GMAC.

It was the surge of aggressive lending to subprime borrowers - and the subsequent defaults when mixed with CDOs that hid the true risk of those obligations that led to the financial meltdown because no one could quite figure out what risks people really had exposure to, let alone accurate values.

GM is looking to get back in the game - lending. Well, on that I can understand to a degree since GMAC fattened up the GM bottom line for years when GM was really a financial company that happened to sell loss-leader cars.

Meanwhile, the New York Times is reporting that GM is still flailing about in the US and shedding market share while making gains in China. Shouldn't the focus be on profits - not market share. GM has been dominant on market share for years, but hasn't translated into the most essential of figures - profits. The company still isn't translating its sales of cars into profits. The cars were loss-leaders for its financing arm GMAC, which turned in huge profits just before GMAC imploded with the mortgage crisis and financial meltdown. When GMAC losses grew exponentially, it sucked down what remained of GM with it.

No word on actual profits and profits per vehicle sold. It's all about market share. That doesn't make GM any more viable. Profits make it viable - and getting profits means doing things far better than GM had done in years past.

Media outlets and business reports should be focusing less on market share and far more on the profits for vehicles sold. It doesn't matter if GM is increasing market share if they aren't selling those cars at a profit. Such efforts are unsustainable.