GM, Ford, Chrysler were propped up by bad lending practices at their captive finance arms. You need a 130% loan to do the deal? OK, we can arrange that. Now that credit has tightened only the best lonas go through… sweet deals on vehicles with unknown future value are a thing of the past.

A frind bought a Honda Accord a couple years ago. I know he likes to shift for himself but he bought an auto. I asked, “Why?”

“Because with an auto, these things are like cash.”

That is the kind of vehicle that banks prefer for collateral. That is not what GM, Ford and Chrysler are supplying at the moment.

I will take a wild ass guess.

New GM SUV list 45k, purchase 35k (reasonable?)

Now, lets say the banks get smart again, and demand 10% down no matter what the price (why they got away from this is curious to me). At present depreciation, the owner will be upside down in less than a year. If in that time, GM goes bankrupt, they could get a whole lot of people walking in with the keys.

Their terms would have to be something like 50% down, 36 months. At that rate, they would get so few takers it’s just easier to readline them.

I can only speculate that loan companies might hold certain parts of the loan calculations at a fixed value to simplify. If a vehicle’s depreciation is very bad and some aspects of the loan calculation are fixed, then the calculation might skew other variables off the charts. Perhaps the calculations dictate that a loan be offered for a certain vehicle at 25% interest rate, but state laws might dictate that interest rates for new car loans can’t exceed 20%. In that case the loan company could do a whole different set of loans by adjusting other areas of the loan, or they might just cross it off the list. In this case, it looks like they just cross it off the list.

That’s not the issue here. According to the article, banks are REFUSING to loan money on CERTAIN vehicles… PERIOD. REGARDLESS of what the market says the value of the vehicle is, the BANK is arguing that it’s worthless either because it’s American made or it’s not fuel efficient enough to suit them. And THAT is BULL$HIT.

There’s no difference between that blatant bias and taking the stand that they’re not going to loan to blacks because, well, because they just ain’t historically economically stable enough to suit the bank…

Again, I think anyone that has an account at Bank of America or any other bank REDLINING certain vehicles should go close out their account immediately. This is blatant discrimination and should not be tolerated.

Wolven writes: The issue for the bank SHOULD be, can the borrower repay the loan. And THAT is the issue regarding the home loan mess. NOT what the value of the house was.

Here in California home mortgages are of the “no recourse” variety, which means that the bank, after repossessing a house, isn’t allowed to go after the other assets or revenue streams of the homeowner. The “no recourse” language is written into the original loan documents by the banks, and the bank is clearly aware of the ramifications. Many banks have been writing loans for decades, write thousands of loan contracts each year, and have teams of lawyers; if the banks don’t understand the contracts that they themselves wrote, that is their own fault.

Consider the dynamics of a “no recourse” home loan with respect to the concept of “the bank should [consider whether] the borrower can repay the loan”:
* If a homeowner has lots of money or a huge income, but decides to give the home back to the bank, the bank cannot go after the homeowner’s assets or income regardless of the owner’s ability to pay the mortgage. That’s in the contract that the bank wrote.
* If the bank receives a home back from the homeowner, the bank will sell the home. The bank is entitled to collect all the money from the sale up to the value of the loan; any extra money has to be given back to the homeowner. If the sale of the home doesn’t bring as much as the loan value, the bank loses that difference. That’s in the contract that the bank wrote.
* If a house goes up in value (or at least exceeds the loan amount plus down payment), a bank can recoup all of its losses if the homeowner goes bankrupt or stops making mortgage payments. There is some hassle for the bank (for which the bank can charge the homeowner?), but the bank will get all of the loaned money back in the case of foreclosure of an above-water house. That’s in the contract that the bank wrote.
* Repossessing houses and whatnot is a hassle for the bank. However, the bank charges fees for various part of the loan. If the bank is worried about hassle down the road, they can opt to not offer a loan contract or they can ask for more money up front to cover possible hassle later on.

Summary: The ability of the homeowner to repay has little bearing on the bank’s financial safety because the homeowner may default regardless of ability to pay if the home is under water. Further, if the homeowner defaults (whether unable to pay or simply unwilling to repay), the bank can make up the loan amount contingent on the value of the house and only on the value of the house. That’s in the contract that the bank wrote.

Conclusion: The issue for a “no recourse” loan is the value of the house relative to the loan amount. The ability of the borrower to repay the loan has almost no bearing on the bank’s risk.

Disclosure: My shack is still above water, especially considering the 20% down payment. If my house went underwater, I would gladly hand over my keys and walk away while honoring the contract that the bank wrote.

If you default on a car loan, the banker must repossess the car and sell it to recover the bank’s money. Therefore, the market value of the used car should set a cap on the amount of money to be loaned. In another TTAC thread, GMAC told the owner of a 5 year old Yukon that it was worth only $2,000. A banker would be nuts to loan you more than $1,000 or $1,500 to buy it.

I think if you surveyed the management of various banks and finance companies, the ‘enviro whack job’ contingent would be quite small.

For some reason I missed that allegation in Wolven’s post, and Eric makes another excellent point. Of all of the bank executives I work with, most own at least one domestic SUV – usually a full-size GM or Ford. Further, it’s extremely unusual for bank-owned vehicles to be anything other than a GM, Ford or Chrysler product.

Much of that last statement has to do with the fact that the domestic automakers cater to fleet sales (lately at their peril, as resale values suffer), but it’s safe to say that U.S. banks are definitely not biased against the U.S. auto industry. Bankers would be shooting themselves in the foot if they were to develop such a bias, as too many people who pay their salaries (in other words, customers) are employed by or work as a supplier to the auto industry.

Third; This is just a blatant attempt to enforce the enviro whack jobs jihad against American automobiles, particularly the SUV.

I encourage you to reconsider that statement. I think if you surveyed the management of various banks and finance companies, the ‘enviro whack job’ contingent would be quite small.

OTOH, the bankers were able to get the current administration to sneak them a $150 billion tax break (note: that’s a giveaway six times greater than the amount of money that the Detroit 3 would borrow under the general bailout parameters)

http://www.ombwatch.org/article/blogs/entry/5522

Given the miserable economic climate, and banks claiming they have no money to lend (I leave it to others to explain why), there’s no surprise car loans are treated similarly.

Now what happens if GM crashes and burns? What does TTAC want to __see__ happen? Should something Phoenix-like rise from the ashes?

Times are tough for all automakers.

Wolven, an ability to repay (capacity) is only one factor in sound lending decisions; having collateral to back up a loan is another, as is credit history. Banks often won’t lend money to buy used vehicles beyond a certain model year (when the vehicle is used as collateral); it’s a safety and soundness decision that banks not only have a right to make, but are encouraged to make by their regulators. And it’s not anti-U.S. The bank I worked for in the 1980’s required a larger down payment (30% versus 20%, which was usual for the time) for Hyundai buyers. We wouldn’t even touch Yugos…

First; There was no mention of the “asset” being worth less than the loan. In fact, that’s a given on ANY new car loan.

Second; The issue for the bank SHOULD be, can the borrower repay the loan. And THAT is the issue regarding the home loan mess. NOT what the value of the house was.

Third; This is just a blatant attempt to enforce the enviro whack jobs jihad against American automobiles, particularly the SUV.

It’s Bul$hit and the banks engaging in it should be slapped with a lawsuit. And the a$$wipes DEFINATELY should NOT be getting any TARP bailout money.

Why can’t a bank have a say in which car it will or will not finance? Their obligation is to the people that gave them the money in the first place – not to the people that want to borrow it.

It just makes sense if a bank does not want to find itself making loans that have asset values far less then the loan – and by the looks of things cars from the Big 2.8 are getting ready for a big hit of depreciation. Imports, not so much….

Didn’t we just get done giving banks sh*t for giving $500,000 loans on $250,000 homes? This is no different.

There SHOULD be an IMMEDIATE BOYCOTT on ANY bank dictating vehicle choices.

You’d think that it would work out better to lease a import (ie. f-150 vs Titan or Tundra)but the fleet lease bucks that the domestics offer makes it work out in their favor. Of course last month we had additional reductions and are presently expecting more of the same any day now.

In my world, it doesn’t really matter what the car is worth; you pay the loan that you agreed to. Unfortunately, that view is not so prevalent today. That’s the problem!

http://online.wsj.com/article/SB122731593872949815.html?mod=yahoo_hs&ru=yahoo

Which is still nuts. I haven’t financed a car in a long time, but I remember that when I bought my first brand-new car (and got my first auto loan) it was a 1985 VW Scirrocco and I had to put 30% down to do the deal. Of course that was no problem because I wouldn’t have been in the market for a new car if I hadn’t been able to put up at least 30%.

The idea is that the collateral value of the vehicle needs to more than cover the loan the day after you drive off the lot, at which point it is a used (depreciated!) car.

I guess that now I know how people of relatively modest means had been buying very expensive vehicles.

My brother lives in Hilo Hawaii, the Ford dealership there is selling new (base models) 2008 F-150’s for $9,800.00. I read an article this week some Dodge dealer in Florida is having “buy a Dodge Ram and get one free” sales event..

One last quick story: The Dodge dealer where I purchased my truck last year called me this week on my birthday. He just wanted to say “Happy Birthday”. I kind of ask him is this a sales call? He said no, his response “no, I am sitting here with nothing else to do, just thought I would call you and wish you a happy birthday.”

That was it.

Methinks we will see 08 and 09 vehicles on the domestic dealer lots through 2011….and since they are already selling 08’s at 50 cents on the dollar of MSRP, bargains will be available. How low will they go? Will we see Stratus’ (Strati?) at $5k giveaway, or will they crush them first?