Comments on: “Anyone with a Pulse” Financing Returns to Haunt GM

By: Jeff Puthuff

Jeff Puthuff — Tue, 20 Nov 2007 21:13:11 +0000

It must be a great time to be a repo man.

By: FINANCEGUY

FINANCEGUY — Tue, 20 Nov 2007 20:59:49 +0000

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

By: Badger

Badger — Tue, 20 Nov 2007 17:21:51 +0000

Financeguy – Interesting. Why do you think the subvented loan pools are performing better if it doesn’t tend towards a higher quality borrower?

By: FINANCEGUY

FINANCEGUY — Tue, 20 Nov 2007 17:13:55 +0000

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

By: Badger

Badger — Tue, 20 Nov 2007 13:48:31 +0000

Actually that’s not quite accurate. The 0%/below market loans (technical term is “subvented financing”) are performing better than the rest of the portfolio. Credit standards on those loans were higher than the market rate loans. I can forward you a copy of Lehman’s report if you want so you’re not working off mis-reported data.

That said, delinquencies – especially among the market rate loans – are rising rapidly. This is especially true of loans that were originated in 2007. Looks eerily similar to the performance of 2007 sub-prime mortgage loans although the magnitude is not nearly as bad. Less than 1% of loans are 60 days delinquent.

By: starlightmica (Richard Chen)

starlightmica (Richard Chen) — Tue, 20 Nov 2007 13:44:57 +0000

FWIW, blogging the bloggers: GM stock volatility up

By: compy386

compy386 — Tue, 20 Nov 2007 13:25:42 +0000

I really don’t see this as being much of an issue. The problem with home loans is that most of the sub prime customers purchased homes they can’t afford and at interest rates far above market value. The first few years their payments are mostly just to pay back interest. If the value of the home has dropped 20%, the bank (or GMAC) stands to lose a substantial sum of money. With auto loans there is no interest so all the payments the customer is making goes to paying down equity. If a customer defaults, it’s likely that there has been some equity built into the vehicle. The credit company is not very likely to take a large default hit. Say for example GM sells a $20,000 car at 0 percent for 60 months. If the custmer makes 1 year of payments then defaults, GM has earned $4,000 of principal. The vehicle at auction will probably fetch 15K (25% depreciation). So GM is out $1,000. However, you also have to factor in that GM probably would have had to pay the customer at least that much in a rebate so at the end of the day, GM makes out like bandits. The higher the assumed 1 year depreciation the bigger rebate GM would have had to pay out in the beginning anyways.