GMAC and subprime auto loans . . . sounds like a fantastic idea!!
In a poorly conceived and monumentally stupid plan, the US Treasury has decided to inject $6 billion into GMAC. If bailing out GM wasn't stupid enough for most peoples' taste, then this plan takes the madness to a whole new level. See, the government will loan GM's lending arm billions (GMAC) in order that it may make SUBPRIME loans to potential buyers.
GM began offering zero-percent financing on some models, and GMAC resumed lending to a wider range of potential customers, after the government said it will inject billions of dollars to help ensure that both survive.
Through January 5, GM will offer zero percent to 4.9 percent financing on loans of up to five years on some 2008 model-year vehicles, and 3.9 to 5.9 percent on some 2009 vehicles. Many of the vehicles also carry cash discounts of $500 to $4,250.
GMAC, meanwhile, will extend loans to retail buyers with credit scores, known as FICO, of 621 or higher. In October, it had restricted loans to borrowers with scores of 700 or higher.
Many analysts consider borrowers with credit scores of 620 or lower to be "subprime." The median U.S. credit score is 723, according to Fair Isaac Corp's myFICO unit.
"The bottom line is much better access to funding," said Mark LaNeve, GM's vice president for North American sales, on a conference call with reporters. He said GMAC may now be able to fund 75 to 80 percent of new vehicle purchases, up from 40 percent since October.
What we have here is a prime example of muddled bureaucratic thinking. Subprime lending got us into this mess so it can sure as hell can get us out of it, right? That's essentially the message D.C. is sending us by even entertaining such fucking idiocy. That's great and all that GMAC might now be able to fund a higher number of defaults loans, but if the juice is running on this $6 billion at over 8%, just how the fuck are you making money on 0% loans?
Bill Ryan of Portales Partners adds the following:
“We would like to sputter in shock and disbelief. General Motors Acceptance Corp. (GMAC) lost $5B in the 9 months ending September 2008 (on an operating basis). It has $100B in subprime and nonconforming mortgages through its ResCap subsidiary, and the government just lent them $5B at an 8% interest rate.
In addition, General Motors (GM) just announced a 0% financing option to car buyers.
So it turns out that we are now subsidizing a globally uncompetitive carmaker that does not understand what qualifies as a subprime FICO score and is offering 0% loans financed by a government (taxpayer) investment that costs 8%.
We guess they are hoping to make it up on volume.”
The following are excerpts taken from a Yahoo article:
Detroit-based GM said it was offering zero-percent or low-interest financing on some slower-selling 2008 and 2009 models over the next week — a promotion made possible by the billions provided to GMAC. (They're slower-selling models for a reason--they look like shit, run like shit, and apparently, sell like shit. Stop fucking making them!!)
Michael Martin, who owns Chevrolet and Saturn brand dealerships in Manassas, Va., said he thinks the loans will be key to turning around the auto industry, adding that GMAC's lifting of credit restrictions sets an example for banks that have yet to use their bailout funding to free up consumer loans. (Yeah, this is what's going to turn the the auto industry around--more defaults, repossessed USED cars and scarred credit ratings. Let's not work on fuel efficiency, reliability or design/ergonomics--oh no, let's just throw more subprime TAXPAYER dollars at the problem and see if that helps. And yes, it's a great model for the banks, except for one thing, dickhead: they already tried this model and it failed miserably, hence the HUGE drop in auto sales.)
"I think these things really spur consumer confidence too," said Martin, who had already seen customer traffic pickup at his dealerships on Tuesday. "People are saying it's good to see GMAC back in the marketplace. Whether it's just a euphoric feeling or not, at least it's a positive." (What deadbeat wouldn't be euphoric knowing he can secure 0% financing on a Yukon with his 621 credit score and drive the thing for free until it's repoed.)
Marc Cannon, a spokesman for AutoNation Inc., a Fort Lauderdale, Fla.-based auto retailer that encompasses 264 dealerships including 73 GM franchises, noted that consumers can faithfully pay their bills for years, but if they miss one or two payments along the way, their credit score can drop into the 600s.
"They're not lowering standards, they're bringing more people into the game," Cannon said of GMAC. "These people are still customers and they're still good people you want to help get into the right vehicle." (A graduate of the Hank Paulson School of Double Speak, I see. I'm sure most people are disqualified because they missed a gas or electric bill. And even so, isn't that the point: miss payments and your credit score drops? Nope, dropping the minimum requirement from 700 to 621 is most definitely not lowering the standard. And accepting kids with 600 SAT scores into Yale isn't lowering standards either.)
