The WSJ [sub] reports that GM is officially looking outside of its former captive finance arm Ally Financial (formerly GMAC) as it seeks more subprime loan deals to drive sales volume ahead of its IPO. GM execs tell the WSJ that The General could do even better with an in-house finance arm, but that these deals will help. And, according to Experian Automotive’s Melinda Zabritski, GM needs the help because
By not financing [subprime] consumers, they are locking out about 40% of the U.S. population
GM’s restructuring consultants AlixPartners add that loyalty improves for customers who buy using a captive lender. The downsides? Higher default risks, the temptation to overload on incentives, and then there’s one more biggy…
Ally is one of the few banks who were rescued by the TARP program to not yet pay back government loans. The WaPo points out that by looking elsewhere for risky loan deals, GM is starving Ally of cash, and is hurting the bank’s chances of repaying its TARP loans. And this conflict between bailed-out firms is clearly grating on the White House, which anonymously tells the Post
Everyone tries to draw you into it. . . . For us, it’s like choosing between your children… We have to keep an eye on what’s going on, for the sake of the taxpayer. But this is exactly why the government shouldn’t be in private-sector business
If the Obama White House is acknowledging the fact, long harped upon here at TTAC, that the auto bailout creates irreconcilable political conflicts, that represents a major shift in tone. It’s just too bad reality can only be acknowledged anonymously.