When General Motors sold off control of GMAC, it lost more than its in-house financing arm. It lost the ability to offer loans to a broad range of consumers, particularly subprime borrowers. As a result, GM also lost market share. Now, the automaker is chatting up two major Wall Street players -- Chase and Wells Fargo -- to remedy that situation.
The timing of the news is unfortunate, coming a day after word begin to break that the consumer protection bill winding its way through Congress will provide an exception for auto lenders. Dealer lobbyists had argued that such financial institutions ought to be exempt from oversight by the new consumer protection agency because they're already regulated by state and federal bodies; at the end of the day, the lobbyists prevailed. Of course, GM has no control over the timing of that news, but it doesn't exactly buff the automaker's tarnished reputation to be talking about subprime lending -- a major factor in the recent recession, which caused a drop in auto sales, which forced GM into bankruptcy -- the day after Congress essentially gave them free rein to do so.
That said, GM isn't the only one angling for lower-income borrowers or those with poor credit. Other automakers do, too -- GM is just trying to gain some equal footing. GM is currently operating at a serious disadvantage, since it's the only one of Detroit's Big Three without a financing agency onboard.
That fact hasn't helped GM sales. Today, GM holds just under 20% of the U.S. auto market. Twenty years ago, it held 35%, and 50 years ago, the figure was just shy of 50%. Of course, much of the slide has to do with increased competition -- mostly from foreign manufacturers -- but being hamstrung by an inability to offer financing for the widest possible range of customers hasn't helped matters the past year.
So the question now is: can these institutions -- retailers and the financial groups that back them -- operate in a way that avoids the problems that got us into this mess in the first place? And do we really want to know the answer?