"Anyone With a Pulse" Financing Returns to Haunt GM
Back when GM was offering zero percent loans to anyone with a pulse (i.e. "sub-optimal" FICO credit scores), we warned that this policy would come back and bite the automaker in the ass. CNNMoney reports that GM's glutes are in peril. "Lehman Brothers analyst Brian Johnson said in a research note Monday that GMAC is experiencing a 'sharp' increase in delinquency rates among its auto-loan customers since July. 'The precursor of credit loss is delinquency- and the 60-day delinquency rate is on the rise for recent issues of GMAC auto (asset-backed securities),' Johnson said. He noted that, with unemployment low, 'the deterioration in auto ABS credit conditions may be evidence of a likely spill-over of the mortgage woes onto the auto credit world.'" This is serious stuff; hundreds of thousands of bad loans nearly sank Mitsubishi. GM spokeswoman Gina Proia admitted a "small to modest uptick in [auto loan] delinquencies" in the third quarter and said GMAC is closely monitoring the portfolio (whew!). "We have taken some steps such as reducing the production of non-prime loans in auto finance. We have also expanded the collection force and we have placed an increased emphasis on the initial verification of applicants, especially those in the lower tier." What was that about escaped horses and barn doors? Oh, and GM stock dropped to a 17-month low.
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GMAC puts people in subvented financing regardless of credit score based on a computer scoring system.To say the credit standards are higher is not an accurate statement,I have done many of these loans with FICO in the mid 500s to the top tiers and that is the regular buying pattern.During 0% for deadbeats GMAC loaded up and qualified sub prime borrowers for these loans.At one point we dug up all our dead deals that couldnt be bought and GMAC sucked it all up so it is not suprising that defaults are up
Financeguy - Interesting. Why do you think the subvented loan pools are performing better if it doesn't tend towards a higher quality borrower?
I really dont know why that would be but I think 0% brings in a lot of cash customers who dont usually finance vehicles and as these loans also apply to commercial transactions there are a lot of companies that do the same thing.Both of these are pretty solid citizens.My take on this is from working in a car store and seeing how GMAC buys paper and I see them buying quite a spread even for subvented rates.I just got a 567 FICO approved for 0% on a 2007 GMC pickup this afternoon
It must be a great time to be a repo man.