Coming soon to a dealership near you: Subprime auto loans

KamaAina

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Thu Jul-22-10 12:37 PM
Original message

Coming soon to a dealership near you: Subprime auto loans

Edited on Thu Jul-22-10 12:41 PM by KamaAina

Some people are a bit slow to get the message...

General Motors said Thursday that it had agreed to buy a financing company, AmeriCredit, for $3.5 billion so it can lease more vehicles and increase sales to consumers with lower credit ratings....

G.M. will use money from its cash reserves, which stand at more than $30 billion as a result of the aid it received from the federal government before and during last year�s bankruptcy....

G.M. said its sales to customers with subprime credit ratings have increased �significantly� since beginning a program with AmeriCredit aimed at writing loans for shoppers in that category last September. Ownership of AmeriCredit, which already has a relationship with about 4,000 G.M. dealerships, �will allow us to provide a full range of financing alternatives for all customers throughout all economic cycles,� Mr. Liddell said.

So they're using the bailout money to make more of the kind of risky loans that caused the financial risis in the first place? :eyes:

edit: Currently, subprime customers account for 4 percent of G.M. sales, in line with the industry average, but about 40 percent of the population has a subprime rating, Mr. Liddell said.

40 percent? There's the problem right there! :wtf:

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NightWatcher

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Thu Jul-22-10 12:41 PM
Response to Original message

1. Kinda like those "we finance u here" used car lots at 24% interest

I guess GM is just going for the low hanging fruit.

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dmallind

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Thu Jul-22-10 12:49 PM
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2. Been there for a while - GM's just buying in to a growing segment

It is perfectly appropriate for riskier loans to carry more interest. We can certainly argeu about what the appropriate sliding scale is, but it's easy to imagine how likely you or I would be to lend money to people who are scrupulously on time and pay in full versus those who are routinely late and welch out on debts. If you had to make a living loaning money to each group based on interest, wouldn't you charge the latter more?

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Hannah Bell

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Thu Jul-22-10 12:58 PM
Response to Reply #2

4. a low credit rating doesn't necessarily mean you welsh on debts. it can in fact mean that you are

so scrupulous you never incur much debt in the first place.

it can mean any number of things.

but high interest rates in & of themselves = higher rates of default.

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TwilightGardener

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Thu Jul-22-10 12:57 PM
Response to Original message

3. Well, unless repossessed cars can damage the economy the way

foreclosures can, I don't think it's all that terrible. Lots of people took a hit to their credit, but still need cars to get to work and school.

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Hannah Bell

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Thu Jul-22-10 12:59 PM
Response to Reply #3

5. if you have a national-level financing company accumulating & bundling all those debts

& selling them to third parties as an "investment," it can indeed damage the economy just as doing the same with housing debt did.

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Cronus Protagonist

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Thu Jul-22-10 01:12 PM
Response to Original message

6. SPIFI = most profitable sales at any dealership

"Special Financing" (SPIFI) is the most profitable profit center at any dealership. Several thousand bucks are made on each sale and the managers dance around like crazy folk when they get to make up to ten grand, sometimes more on a single used car sale with a SPIFI deal.

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