The Truth About Cars » loan The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Tue, 22 Jul 2014 14:00:50 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » loan Moody’s: Underwriting Standards, Borrower Credit Declining Wed, 11 Jun 2014 12:49:06 +0000 12116452-subprime-auto-loan-interest-rates

The global outlook for Auto Back Securities (ABS) is steady – except in North America, where underwriting standards and borrower credit are slipping.

The latest news comes from ratings agency Moody’s, which issued a new report on the popular investment vehicle. Sanjay Wahi, Vice President and Senior Analyst, stated

“Globally, auto loan ABS pools will continue to consist primarily of loans to prime borrowers. The exception is the US, which has a sizable market for securitizations backed predominantly by near-prime and subprime borrowers.”

Moody’s has long been bearish on subprime ABS in the United States. Both Europe and China are cited as having safer loan pools due to stronger underwriting standards and more rigorous loan terms. But the United States is unique in the predominance of subprime loans, perhaps in part due to the demand for specific sections of ABS (called “tranches” in the investment world) which are comprised of the riskiest subprime loans.

ABS has become a popular security in recent years, with subprime driving much of its growth. With fixed income yields at historic lows, investors are hungry for securities that will provide decent returns. ABS, particularly the subprime tranches of these securities, are among the few products that can provide them - their greater risk profile entails the potential for a higher return. Some have argued that the demand for ABS has led to the growth in subprime financing, with looser underwriting standards (in some cases, they are laughably lax) and a number of OEM captive financing arms that are all too willing to finance buyers with poor credit so that they can “move the metal”. Traditionally, the thinking has been that most buyers are sufficiently trustworthy enough to make their payments on time, and able to offset the few delinquent buyers – but that trend appears to be reversing as of late, with delinquencies on the rise. And if the latest trends outlined by Moody’s are any indication, this isn’t likely to reverse.


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Piston Slap: Because Nobody Lies on Craigslist! Wed, 07 Aug 2013 12:07:54 +0000

Walt writes:

Mr. Mehta,

I am seriously considering purchasing a 1965 Mustang Fastback from a private seller on craigslist. He owes $3000 on the vehicle. I myself will have to take out a loan to pay for said car. The title to the car is held by the same institution that will be lending me the money. The situation is somewhat further complicated because this institution has no local branches to sit down with a representative and the current payer on the car to do the necessary paperwork. Compounding the issue is the fact that I live in a different state, 200 miles from the car’s location.

Bottom line, I would like to know how to go about this to achieve these objectives:

– My money goes to the rightful person or institution
– I get the proper paperwork to take possession of the vehicle
– The seller is legally compelled and bound to sign the title over to me when I have paid my loan
– I minimize my trips to and from the car’s location

This is my first ever car purchase (worry not, I own another reliable car) so please let me know if I have my facts wrong about the process. Provided these circumstances are not completely heinous and indicative of a potentially bad situation for me, I would like to move forward with my purchase.

Sajeev answers:

OMG…did I really just read that?

Everything here sounds like a unique twist on the typical craigslist scam. If you can’t get a trustworthy, third-party local to sort out this complete Charlie Foxtrot, run like hell. I see nothing worth pursuing in your letter…and not just because I think Fox Mustangs are better than any Pony Car from the 1960s.

And FWIW, needing a loan to buy a classic money pit is a horrible idea. And that’s putting it mildly! If you can’t afford it now, how on earth can you afford the repairs that will come sooner rather than later?  Everything can and will go bad, even the new parts you put on could be defective…it happens all the time!

Come on, Son! Even if the craigslist seller is on the level, you have to pass this one up until your savings account matches your passion for antique vehicles.

(Offline Update from Walt: In the end I decided to pass on the car.  Too much money and too much of a hassle for what was being offered.  I read TTAC daily and enjoy your articles, so keep up the good work!) 


Send your queries to Spare no details and ask for a speedy resolution if you’re in a hurry…but be realistic, and use your make/model specific forums instead of TTAC for more timely advice. 

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DoE Gets Some Money Out Of Fisker Tue, 23 Apr 2013 14:44:15 +0000

The U.S. government has managed to recover $21 million in cash from Fisker, funds that will go towards repaying the nearly $200 million its received from the government in the form of loans.

Automotive News reports that the funds came from sales and private investment, rather than unused loan money. Reports say that Fisker’s emergency fund was tapped to obtain the cash. Fisker’s first payment for the loan was due on Monday, though the Department of Energy didn’t say whether the funds helped satisfy that requirement.

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VC Firms Expected To Take A Billion Dollar Bath On Fisker Thu, 18 Apr 2013 12:30:13 +0000

PrivCo, a private corporate intelligence firm, has published a 20+ page dossier on Fisker’s seemingly strong ability to fundraise for itself, while failing to do a good job of actually creating cars. With Fisker teetering on the verge of bankruptcy, the results are staggering; with just under 2000 units sold, Fisker burned through an estimated $1.3 billion in venture capital, taxpayer-funded loans and private investor funds.

According to PrivCo’s estimates, that amounts to $660,000 per Karma sold. PrivCo has charted out an extensive, detailed timeline of Fisker’s operations, and highlighted key information pertaining to corporate developments, government loan proceedings and the various ways that Fisker breached their agreements with the government. What materializes is an amazing picture of how Fisker was able to raise enormous sums of money merely on the promise of providing a “green” car for the very wealthy few, without every creating anything tangible or ready for the marketplace. According to the firm, the government

“…applied negligent underwriting standards in granting the DOE Loan and Credit Agreement to Fisker, which was by any commercial standard clearly a financially unqualified borrower for the loan.”

You can view the full report at PrivCo’s website.

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Workers At LG Chem Plant On Furlough As Green Jobs Wilt Fri, 19 Oct 2012 18:56:03 +0000 Click here to view the embedded video.

Workers at an LG Chem plant in Holland, Michigan have already been put on furlough before a single battery has come off the line. Workers have three weeks of paid “work”, and one week off unpaid at the $300 million plant.

As early as 2010, the Holland plant was touted by President Obama as the return of manufacturing jobs to America, and green ones at that. The facility was estimated have produced 15,000 batteries a year and added hundreds of jobs. So far, 200 workers are being paid to do nothing.

The Department of Energy provided a $151 million Recovery Act grant for the factory, while LG received property tax breaks worth $50 million over 15 years (contingent on reaching 300 workers over 5 years), and $2.5 million in other tax breaks. While the plant’s largest customer was supposed to be the Chevrolet Volt, all of its batteries have come from South Korea so far.

Target 8, A local NBC affiliate interviewed plant employee Nicole Merryman, who said that

“We were given assignments to go outside and clean; if we weren’t cleaning outside, we were cleaning inside. If there was nothing for us to do, we would study in the cafeteria, or we would sit and play cards, sit and read magazines,” said Merryman. “It’s really sad that all these people are sitting there and doing nothing, and it’s basically on taxpayer money.” 

Worers placed on furlough are eligible to collect unemployment for that week, but that’s not the only government subsidy that is used to sustain LG Chem’s work force. Of the 200 employees at the plant, half are being paid via Recovery Act funds. 40 percent of the company’s $133 million expenditures have gone to foreign companies, mostly South Korean, according to Target 8. The station is also reporting other taxpayer-funded expenditures

A Target 8 analysis of federal records shows taxpayers spent $7 million to train workers and have paid more than $700,000 for workers’ health and dental insurance. There’s millions of dollars more at stake for LG Chem if it doesn’t keep hiring, or if its job numbers fall. The state approved a $25.2 million job-creation state tax credit over 15 years, and a battery cell state tax credit worth $100 million over 4 years. Both are tied to job creation. LG Chem has yet to file claims for that money, state officials said.

Workers haven’t produced anything since December, when production of test units of battery cells ended. Sluggish sales of the Volt are one possible culprit, though the plant hasn’t made any components for the Ford Focus EV either, as it was originally planned to do. One possibility is that the Holland plant will produce batteries for the second generation Chevrolet Volt, but even then, there are controversies over the technology being farmed out to LG Chem after it was developed with public funds. The next generation battery is due out in 2015 and is said to be 35 percent cheaper than what’s out there today.

Right now, we are left with a $300 million mystery. The subsidization of unused capacity is puzzling, to say the least, not to mention a horribly inefficient use of stimulus funds. The grants given out by the government are contingent on hiring more workers, but if nothing is being produced, how can LG Chem justify keeping the plant open, even with workers (half of whom are paid via Recovery Act funds) on furlough?

At least there’s one upshot to the whole ordeal. The report by Target 8 has led to an investigation into the LG Chem plant by the  Recovery Accountability and Transparency Board, a government agency responsible for overseeing the stimulus funds.


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Romney Dubs Tesla, Fisker As “Losers”, As Tesla Issues Stock To Stay Afloat Thu, 04 Oct 2012 17:53:33 +0000

Viewers of last night’s Presidential debate may have caught Mitt Romney bad-mouthing Tesla and Fisker during his remarks. Meanwhile, Tesla’s new prospectus shows that they’re hardly out of the woods yet, financially speaking.

Last night, Gov. Romney delivered this barb to President Obama

“You put $90 billion — like 50 years’ worth of breaks — into solar and wind, to Solyndra and Fisker and Tesla and Ener1,” said Romney. “I mean, I had a friend who said, you don’t just pick the winners and losers; you pick the losers.”

The remarks came right as Elon Musk and Tesla prepared another stock issue to raise so much needed cash. Tesla’s latest SEC filing declares that

Based upon our current financial forecast, we currently anticipate that if we do not raise the proceeds anticipated from this offering and do not otherwise adjust our operations accordingly or amend the DOE Loan Facility, we may not be compliant with the current ratio covenant for the quarterly period ending March 31, 2013. For the quarters ending September 30, 2013 and December 31, 2013, we currently anticipate that without taking advantage of additional revenue opportunities or making adjustments to our spending, we expect that we will need to seek an amendment from the DOE to modify the fixed charge coverage ratio covenant. Moreover, we currently anticipate that without raising capital in addition to this offering, we would need to seek an amendment from the DOE to modify the total liabilities to stockholder equity covenant for the quarter ending March 31, 2014 and the two subsequent quarters.

While Tesla will apparently become cash flow positive next month, the mainstream media has glossed over the fact that they are also in grave danger of being out of compliance with their DOE loans for as much as 18 months into the future. Unfortunately, it doesn’t matter how good the Model S is. If it don’t make dollars, it don’t make sense.

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Long-Term Car Loans Rising In Popularity North Of The Border Mon, 23 Jul 2012 18:18:29 +0000

Canadians have some of the highest household debt levels in the world, thanks to cheap mortgages and home equity credit lines. And car loans are next.

Canadian household debt levels are estimated at 152 percent of  income, and long-term loans with cheap interest rates (or 0 percent interest) are cropping up all over the place. A look to Canadian manufacturer websites shows that most of the big players are offering some kind of 0 percent. A  J.D Power survey cited by The Globe and Mail claims that more than half of Canadians financing a new car are taking out loans with terms longer than 6 years. That figure was around 14 percent just five years ago.

Typically, a 7 year term can be had interest-free, which makes it attractive for families or individuals burdened with exorbitant housing costs. While consumers are stuck with a long loan term (often well past a car’s warranty period) the lower monthly payments are an attractive proposition. The collapse of leasing, which accounted for 40 percent of purchases before the recession (compared to just 17 percent over the past year), is also cited as a cause for the increase in financing.

Of course, this is all normal, and real estate in major cities will continue on its unstoppable rise upward and there will never be a shortage of foreign investors looking to park their money in Canada. Ever. Which means interest rates will always stay low and nobody will ever have to worry about living beyond our means.

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DOE Loans In The Works For GM, Chrysler Fri, 14 May 2010 21:11:38 +0000

Officials working with the Department of Energy tell the Detroit News that GM and Chrysler face no major obstacles in their quest for huge retooling loans from the DOE’s Advanced Technology Vehicle Manufacturing Loan program. GM is seeking $14.4b and Chrysler has asked for $8.55b in low-cost government loans. Says Matt Rogers, a senior adviser to the Energy Department

Project finance details need to be worked through, but those things are working out just fine as we work directly with the companies. It’s really a process of making sure that each of the projects that they have are in fact competitive.

Er, competitive compared to what?

As former Tesla Marketing boss (and frequent ATVML critic) Darryl Siry puts it:
So the guys from the DOE and Booz Allen Hamilton or AT Kearny are trying to judge whether the series hybrid Chevy Volt will be competitive? It certainly will be disadvantaged if you don’t fund it. Why? BECAUSE YOU FUNDED THEIR COMPETITION. Now that you have screwed up the natural forces of the marketplace, the DOE must provide equivalent support for the Volt program and let them compete on a level playing field with Nissan, Ford and even Tesla and Fisker.
And he’s right: All four firms he mentions have received money from the ATVML program, despite qualifying for unproven products. Besides, viability of the Volt program was never the main problem with GM’s bid for DOE loans. The big hangup was a financial viability clause, that GM now undoubtedly passes, having received tens of billions of dollars in direct taxpayer support. If you’re going to help GM over the financial hurdle, why pretend that the Volt’s viability is an issue? Especially when the presidential task force on autos already ripped into the Volt’s chances pre-bailout, only to come to swing back in favor of Chevy’s hail mary.
We’ve known that GM needs this money since last summer, and we’ve contacted the DOE several times trying to follow up on the status of GM and Chrysler’s loan applications. Why this whole process has been so shrouded in mystery is hard to understand, and this secrecy is more than a little troubling considering the impact these decisions have on the industry. But then, that bridge was crossed when the bailout happened… why the DOE is wasting time pretending that it might not give GM and Chrysler the cherry on top of their bailout is tough to fathom.
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The Sky Is Falling: DetN Disses GM Sun, 02 May 2010 00:00:37 +0000

The Detroit News, by some regarded as the in-house organ of GM, has issues with GM. The DetN doesn’t like GM’s latest TV ad (“some future models shown”) in which Ed Whitacre proclaims that GM paid back its “loan, in full, with interest, years ahead of schedule.”

The “GM ad glosses over the reality” complains the headline of the article in which the former unofficial organ of GM rips Whitacre a new one. Says the DetN: “He’s technically correct because he clearly uses the word “loan.” Otherwise vague? Yes. Misleading? Depends on your perspective.”

Then, the sky is falling once again. The DetN gives a lot of column inches to Darell Issa, despite the fact that Issa “represents GM rival Toyota Motor Sales U.S.A. in Congress.” At least as far as the DetN is concerned. Nonetheless, he is quoted suchly:

“We are concerned that GM, under your leadership, has come dangerously close to committing fraud, and that you might have colluded with the United States Treasury to deceive the American public,” Rep. Darrell Issa, R-Calif., wrote Whitacre on Thursday. “If someone relies on your statements in the future … your false statements may expose GM to millions of dollars in damages, further reducing the value of the taxpayer-owned company.”

Since when is the DetN quoting a Toyota representative to prove their point? In closing, the DetN remarks:

“The ads, coming before first-quarter numbers are due to be released in mid-May, signal a readiness to risk riling politicians or tweaking competitors. Whether that’s gutsy or dumb will depend on how difficult competitors and politicians choose to make things for GM, especially if Whitacre & Co. give them more material. Bottom line: American taxpayers still own 61 percent of GM, worth about $43 billion. When — if — that all ever gets paid back, you’ll know about it. “

Come on guys, Treasury has signed off on the ad. What did Whitacre do to make the DetN mad? Did he forget to put an ad in the DetN?

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Grassley: Was GM’s “Payback” Shuffle About Avoiding The TARP Tax? Fri, 23 Apr 2010 14:47:09 +0000

While the White House and most of the media spent the last two days parroting GM’s claim that it “paid back” taxpayers, Senator Chuck Grassley was busy writing a letter to the Secretary of the Treasury [letter available in PDF here]. The three-page note opens:

Dear Secretary Geithner:

General Motors (GM) yesterday announced that it repaid its TARP loans. I am concerned, however, that this announcement is not what it seems. In fact, it appears to be
nothing more than an elaborate TARP money shuffle.

No surprises there: TTAC has been all over this ruse for months now. Grassley does sum the situation up nicely, stating that “A debt-for-equity swap is not a repayment,” but the most interesting part of his letter is his theory for why GM and the Administration approved the tax-money reshuffle. Thus far, we’ve assumed that PR was the driving concern in this transparent deception. According to Grassley though, there may be another reason…

Grassley’s theory: GM and the Administration shuffled the money back to taxpayers in order to help the automaker avoid President Obama’s Financial Crisis Responsibility Fee, also known as “The TARP Tax.” He explains:

I am also troubled by the timing of this latest maneuver.  According to Mr. [TARP Special Inspector General Neil] Barofsky, Treasury had supervisory authority over GM’s use of these TARP escrow funds.  Since GM’s exit from bankruptcy court, Treasury had approved the use of the escrow funds for costs such as GM’s obligations to its parts supplier Delphi. According to the GM 8K, GM had planned to use the TARP funds in escrow to pay back the TARP loans on a quarterly basis beginning in the fourth quarter of 2009.  But following the April 20, 2010, hearing of the Senate Finance Committee, where Treasury’s decision to exempt GM from the bank TARP excise tax was questioned and GM’s refusal to testify was noted, it is odd that GM suddenly drew down on the TARP escrow and accelerated the repayment of the remaining balance of GM’s outstanding TARP loans.

The bottom line seems to be that the TARP loans were “repaid” with other TARP funds in a Treasury escrow account.  The TARP loans were not repaid from money GM is earning selling cars, as GM and the Administration have claimed in their speeches, press releases and television commercials. When these criticisms were put to GM’s Vice Chairman Stephen Girsky in a television interview yesterday, he admitted that the criticisms were valid:

Question:    Are you just paying the government back with government money?

Mr. Girsky: Well listen, that is in effect true, but a year ago nobody thought we’d be able to pay this back.

Mr. Girsky then said that GM originally planned to pay the loan over the next five years.  So the question is why—other than a desire to justify excluding GM from the administration’s TARP tax proposal—would Treasury and GM reduce GM’s TARP debt with TARP equity and then mischaracterize it as a repayment from earnings?

Why indeed? As Grassley points out, GM did decline to appear at TARP Tax hearings, which was convenient, considering it and Chrysler are likely to account for most of the TARP program’s losses. With a number of questions about the TARP Tax looming and more hearings planned, it’s not inconceivable that Grassley’s theories will pressure Treasury to explain its approval of GM’s white lie.

But more important than any game of Potomac Gotcha is the glimpse at GM and Chrysler’s future that this controversy presents. Americans actually seem to care whether bailed-out automakers really pay them back or just pretend to. With Chrysler literally unable to ever make the taxpayer’s whole, how can that company ever project an image of success to the public? With a GM IPO unlikely to generate the huge sums needed to square up with Treasury, how can The General plan for a future of growth on the basis of this flimsy deception? The Department of the Treasury may rubber stamp GM’s creative accounting, but it won’t be buying the cars that will create a real turnaround for the automaker. That’s up to the American people, and as a group, they’re not overly fond of spending their hard-earned at companies that owe them money. As companies in an industry that is deeply dependent on consumer sympathy, GM and Chrysler simply can not afford to be seen as trying to weasel out of commitments. They should be embracing, not evading a framework for long-term repayment.

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GM, Pay Me My Money Down Fri, 26 Mar 2010 11:32:00 +0000

Reuters says GM is making a big deal out of sending a $1b check to the U.S. Treasury next Wednesday, “attempting to settle the loan with the government ahead of schedule.”

Who are they kidding? Reuters rightly points out that last November, “GM had said it would begin making quarterly payments in December of $1.2 billion to the U.S. Treasury and the governments of Canada and Ontario.” This coming Wednesday, the quarter is up and it’s time to feed the beast, boys.

GM “was given $50 billion of government financing to restructure in a bankruptcy steered by the U.S. Treasury, which remains a 61 percent owner of GM stock,” as Reuters reminds us. So if they keep up those quarterly payments, it will be 42 quarters, or 10 years, more or less.

Wait, we forgot the interest! Could the green eyeshade contingent please calculate how long it takes to pay off a $50b loan with $1.2 quarterly payments, at a generous prime rate of 3.25 percent?

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Auto Loan Delinquencies To Rise In 2010? Wed, 16 Dec 2009 19:24:27 +0000 Still in business...

Credit reporting agency TransUnion is forecasting a rise in auto loan delinquencies next year, adding to the list of factors that could slow a turnaround in auto sector sales and profits in 2010. 60-day auto loan delinquency has been rising throughout 2009, reports the WSJ, as tighter lending standards have increased the ratio of delinquencies in outstanding loans. Those tighter standards sill contribute to a slight downturn in delinquencies in the first half of next year TransUnion’s Peter Turek tells Automotive News [sub], but by halfway through the year those numbers should increase again. Nationwide, TransUnion reckons .92 of all auto loans will be in delinquency by the end of 2010, compared to .86 at the end of this year. The average national auto debt is $12,542, and the Freep reports that loan terms are falling and average credit scores for approved loans are rising.

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Swedish Government: Saab’s Books Were Cooked Wed, 18 Nov 2009 14:27:05 +0000 The lurking presence...

Looks like GM may have done some creative accounting after all – at least according to Swedish Government and their consulting firm KPMG. As we’ve reported the last couple of days, Saab’s rescue has been hanging by a thread due to questions around the company’s financial situation prior to the start of the financial crisis. Saab needs the EU to approve the Swedish Government’s guarantee of an EIB loan to Koenigsegg group if the deal is going to go through. If Saab, during the summer of 2008 – when the financial crisis started – were not in sound financial condition, the EU cannot, will not, approve Swedish government’s guarantees to the EIB loan, and the loan will not be granted. And reports from yesterday almost laid that possibility to rest, with reports that GM had lost $ 5.100,- on each Saab-car sold during the last 8 years. Now, as commentator dlfcohn and others at ttac, as well as several commentators at have pointed out, creative accounting can be useful in major corporates i.e to avoid taxes in tax-heavy countries. This, apparently (at least according to’t/KPMG) was the case with GM/Saab.

Consulting firm KPMG has been commisioned by the Swedish Government to go through Saab’s finances, and examine the cash-flow and sales. The consolidated report, from which the government has produced an 80-page document to the EU, concludes that Saab was not in any financial trouble during summer of 2008, due partly to GM having infused capital into the company. Saab themselves has apparantly also helped document that they were in fact in good financial health mid 2008.

Sources from within Saab have told that GM has never been interested in reporting taxabale gains in Sweden. Revenues from US sales were never declared in Sweden, but rather went straight to GM. A number of components (including engines) had much higher internal prices than Saab’s own in-house-produced components to benefit other areas with lower tax laws. Saab’s financing company has not been included in Saabs accounts, and the list goes on. Clearly, argues the Swedish government, Saab was as healthy as it could be considering it was rigged by GM to show no profit in Sweden.

If the EU-commision accepts this report, and agrees following their own investigation, they have two months to make a decision to Saab’s fate. Commentators believe the conclusion will be positive, and that it will arrive before the end of this year.

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GE Capital Backs Jaguar/Land Rover Mon, 16 Nov 2009 19:43:00 +0000 Private Capital? Really?

According to the Financial Times General Electric’s in-house virtual bank, GE Capital, has agreed to give JLR (Jaguar-Land-Rover) new financing secured by vehicles as they come off the production lines. Cash flow wise, JLR will get money almost instantly upon completion of production rather than later on down the road when the dealers and/or their banks pay for the vehicles. GE Capital says it looks forward to helping other European automakers free up working capital by borrowing against “underutilised assets”. This new kind of financing gives companies a powerful incentive to build cars for the “Sales Bank” even if no firm dealer commitments are in hand. Rut Row!

JLR has been a massive money pit for Tata so far. “Tata has pumped more than £1.2bn into JLR to cover losses since buying the businesses from Ford Motor for $2.3bn last year.” Besides the new GE money, JLR borrowed £500m from a group of banks last month and continues jawboning the EU and UK governments for mo’ money. Meanwhile, JLR has already promised to shut down at least one of its three UK factories. Ford seems to have sold at the last possible good time. Speaking of which, not much news about the prospective Volvo sale in some time, eh?

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