The return of investment-grade status will help General Motors strengthen its Fort Worth-based lending arm, GM Financial, Chief Financial Officer Chuck Stevens said.
Standard & Poor’s upgraded both General Motors and GM Financial on Thursday, citing progress in Europe, healthy cash flow, and limited reputational and market-share damage from the company’s record recalls.
The higher rating is another step in the recovery of the onetime symbol of America’s industrial might as it rebuilds with a new finance unit focused on helping drive vehicle sales.
GM was forced to sell control of its former GMAC lending unit to a hedge fund in 2006 to raise money to stay in business, and risky home loans ultimately forced that lender into bankruptcy. Now it has a smaller and more strategic finance arm that is getting stronger.
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“This ultimately supports GM Financial and our planned expansion of that business globally, which ultimately helps us sell more cars globally and improves customer loyalty,” Stevens said. “That’s, first and foremost, the benefit of this upgrade.”
The new GM Financial was formed out of the $3.5 billion purchase in 2010 of subprime lender AmeriCredit Corp. The GM lending unit bought Ally Financial’s operations in South America and Europe in 2012 and is working to acquire the rest of Ally’s joint-venture operations in China, GM spokesman Jim Cain said. GM Financial, also known as GMF, is now deemed a “core” subsidiary.
Last month, the company said it had bought a 240,000-square-foot building near its Arlington customer service campus, where it plans to add up to 900 workers.
Lending to car buyers with imperfect credit has come under federal scrutiny. The Justice Department is seeking documents on underwriting criteria, origination, warranties and securitization of subprime loans since 2007, GM Financial said in a filing last month. The availability of credit has helped spur five straight years of rising U.S. auto sales.
GM Financial acquired a Canadian leasing company and in the U.S. has expanded into prime leasing and finance as well as dealer-inventory financing, Cain said. Ally is the new name of GM’s former GMAC.
The upgrade, five years after a $49.5 billion government-backed bankruptcy, comes even as Kenneth Feinberg weighs hundreds of claims for damages related to deaths and injuries resulting from a faulty ignition switch in small cars. S&P said credit measures will remain strong over the next year or so even after recall-related costs.
“We wanted to understand the impact of the recalls from a reputational standpoint as well as the effect they might have on the market share,” said Nishit Madlani, an S&P analyst. “The company’s performance over recent months has shown that recalls haven’t impacted sales.”
The automaker has also taken advantage of its new lease on life by slimming down its brands and operation and changing the way it operates, he said. An agreement with unions to have new workers assemble vehicles for less pay than older workers means that GM now makes money building cars — not just trucks.