General Motors (GM) Co. has decided not to follow through on plans to create its own finance unit, according to a report by Bloomberg. The auto company will instead seek lending assistance from banks, including JPMorgan Chase, Bank of America, and Wells Fargo.
The company is seeking to boost its subprime lending and leasing capabilities. Although the firm discussed the option of creating its own bank or buying back its former lending unit, GMAC, which is now Ally Bank, both options proved not feasible, according to the Bloomberg report.
Subprime borrowers comprise approximately 7% of GM’s customers — on par with the rest of the market for new cars in the U.S., the report said. But auto company-owned lending units make up 17.1% of subprime deals, and a majority of the firm’s competitors have their own finance companies, Bloomberg reported.
GM could employ outside banks to make loans and write leases while branding the financing under the GM name, according to the report.
Increased competition among banks may offer GM customers better loan terms or lower monthly payments, fueling business for the U.S. automaker.
While some haven’t entirely ruled out the acquisition of GMAC, the former GM subsidiary reportedly isn’t interested in selling and GM allegedly does not want to its Residential Capital mortgage unit to be part of the purchase, Bloomberg said.
The U.S. Treasury, which owns 61% of GM and 56% of GMAC as a result of last year’s auto-bailout, does not want to get involved with forcing a deal, the report indicated.