Following in the footsteps of Spanish bank Santander, GM Financial announced that it would enter the prime lending market in 2014.
8 years to pay off a car? A report by the Wall Street Journal claims that in Q4 of 2012, the average car loan stretched out to 65 months, or just over 5 years. Loan terms were being stretched out over increasingly longer terms too, with credit firm Experian reporting that nearly 1 in 5 car loans had terms between 73 and 84 months long, with some stretching for as long as 97 months.
March was the 5th straight month of a SAAR above 15 million vehicles. Industry analysts have explained the strength of the market in a number of ways. The need to replace older vehicles is one (new car sales were hit hard during the recession as consumers held on to their vehicles for longer. This also caused used car prices to skyrocket, something TTAC has been documenting), while others have cited increasing fleet demand, and the desire to replace vehicles damaged in Hurricane Sandy.
But one factor that is just starting to get attention outside of TTAC is sub-prime financing. Sub-prime lending, which involves giving high-interest loans to customers with poor credit scores, is driving the SAAR in a big way, by letting buyers with poor credit purchase new cars. In turn, the sub-prime bubble is being driven by Wall Street, whose clients cannot get enough of financial instruments backed by sub-prime auto loans.
Bailed-out GM agreed to pay about $4.2 billion for the European and Latin American operations of likewise bailed-out Ally Financial, formerly known as GMAC. (Read More…)
Bailed-out GM might sink $2 to $4 billion into likewise bailed-out Ally Financial to buy some of the lender’s international operations. Ally “ironically wants to use the proceeds to help repay its own federal bailout aid,” says Reuters. That plan does not sit too well with some observers. Says the wire: “Analysts and investors disagree on whether that would be the best use of cash, with some preferring a stock buyback or dividend payment.” (Read More…)
Minutes after Ally Financial, the bs-artist formerly known as GMAC, took its Residential Capital bankrupt, David Shepardson tweeted to his followers that all is fine:
“GM owns 9.9% of Ally Financial Inc, while
@USTreasuryDept owns 74 percent” (Read More…)
There is new trouble brewing in an important part of GM’s business: Ally, the former GMAC. Nearly 75 percent of the credit that GM dealers in the United States use to finance their inventories is from Ally, says a Reuters report. The report also says that Residential Capital (ResCap) – Ally’s mortgage servicing and lending unit – is again on the verge of being put into bankruptcy. (Read More…)
Now that GM’s acquisition of the subprime lender AmeriCredit has had 24 hours to sink in, howls of protest are starting to surface. The charge is being led by Senator Chuck Grassley, who has requested a review of the deal from the SIGTARP, saying
If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first. After GM’s experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans.
And though Grassley’s criticism could be read as mere partisan gamesmanship from a leader of “the party of no,” there are a number of very good reasons for opposing the deal.
When we first heard that GM was eying a return to in-house financing, our first reaction was to worry that
the potential for falling back into old bad habits can’t be ignored.
Clearly our concern wasn’t wasted, as the AP [via Google] reports that The General’s major motivation for considering re-creating a captive lender is to chase subprime business its current major lender won’t touch. And considering that that lender is GM’s bailed-out former captive finance lender GMAC (now Ally Financial), which was badly burned by subprime mortgages, it’s not surprising that GM is frustrated by GMAC’s tentative approach. But should The General charge into the low-standard lending sectors where Ally fears to tread?
News that GM is considering a number of options for a return to captive finance, has lit a fire under Chrysler CEO Sergio Marchionne, who tells the Detroit News that
One of the things that we do not wish under any circumstance is to have an uncompetitive relationship vis-À-vis GM
The underlying cause of GMAC’s failure was no different than so many other American financial institutions: giant bets on risky mortgages at the height of a real estate bubble. And though that error alone would have qualified GMAC for a bailout rescue along with the other failed banks, The WSJ reports that the ongoing support for GMAC is “reflects the troubled company’s importance to the revival of the auto industry.” And man, it had better be important. The GMAC bailout has been one of our least-favorite of the season, rewarding poor practices in auto and mortgage lending, and exposing taxpayers to inordinate risk. But, as TTAC warned back in the pre-bailout days, once the camel gets a nose into the tent, good luck getting it out. And so, GMAC will be receiving another $3.8b in TARP support, on top of the $12.5b it has already received. As a result, the US taxpayer’s stake in GMAC is expected to rise above the current 35 percent stake, just in time for more write-downs planned for the next week. The cash injection is said to prime GMAC for a profitable Q1 2010, erasing some giant losses in the bank’s ResCap mortgage unit. And of course the move will help GMAC continue to underwrite the leases that Chrysler and GM so desperately need, but can’t afford due to plummeting resales. GMAC’s bailout often doesn’t get marked up in the auto industry bailout tally, but at over $16b so far, it’s one of the crucial pieces keeping the zombie automakers shambling along. Now, about repayment…