GMAC to Lower Lending Standards
When the news came across the e-transom last night that Cerberus’ chairman John Snow’s pals at the U.S. Treasury had decided to “invest” $5b in GMAC, my blog was filled with words like “bat shit crazy” and “disgusted.” After the shock wore off, I edited the post to remove my angry jibes and let the nonsensical nature of the move speak for itself. And respect the views of those who feel that pissing away $6b (an extra $1b for GM) is in the national interest, free market principles be damned. And anyway, I figured this is only the tip of the insanity iceberg. It didn’t take long to get a look below the waterline. Marketwatch (can someone lend their logo a sweater?) reports that the plucked-from-bankruptcy lender is lowering its lending criteria, from a FICO score of 700 to 621. “The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers,” said President Bill Muir in a statement. “We will continue to employ responsible credit standards, but will be able to relax the constraints we put in place a few months ago due to the credit crisis.” Need I say more? Oh, one thing: we still don’t know whether or not GMAC met its debt-for-equity target. I wonder why…
More by Robert Farago
Comments
Join the conversation
And these same corporate executives complain about taxes and welfare for poor people yet they love corporate welfare in the form of the bailout and tax incentives from local governments... So as this ship is sinking I only have to say "May God have mercy on our souls..."
Giving loans to credit risks is not how we got into this mess. We got into this mess by following an economic model that substituted asset inflation for true gross national product growth, while at the same time removing regulation and oversight.
@ Pch101 Doing battle with GM is child's play, with management is so incompetent that they pose no real challenge. I agree absolutely. I have posted something similar previous as to why Toyota would like GM around, but your post captured it nicely. @ gamper Toyota’s 0% financing was offered to anyone with at least a 650 FICO score. Stands to reason that they would finance people below even that number but not at 0%. But, I guess if you are talking about domestics, it becomes poor lending practices. A FICO 650 @ 0% on a Toyota product with good (or better than the rest) resale seems like a completely different transaction to 621 at even 8% on a Bigish3 product with bad (or worse than the rest) resale no? So yes, it is poor lending practice because there is a "worse" asset to back it.