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GM Looking To Offer More Loans To More Customers

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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?

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Comments (10)
  1. Its very good to hear that the big three captive lenders are not the only ones lobbying to keep the dream alive for millions of Americans looking to finance a new or used auto MADE IN AMERICA! Hats off to both Chase and Wells for the continued support of the automotive industry. Lets not leave out some other key players in the industry right now. Wachovia (even though they were bought out by Wells Fargo, it is Wachovia's business moel being used in the industry becuase of it's success rate and low collections). Citiauto, with their renewed business model, they may not be buying up everything, as thery once did, but they are definitley bridging the gap on sevreal fronts (both prime and sub-prime markets) keeping profits proffitable and autos sellable! Capital One, still not the most aggressive but again keeping in the race without any problems in sight. Please, let us not forget our local Community Banks and local Credit Unions for being bold and courageous and taking a chance on select auto dealers, both in the franchise arena as well as the entrepreneaurial spirit of Independant auto dealer! Kuddos to all these guys for not bogging down when the headlines read DISASTER ON THE HORIZON. Way to step up and really reflect the American Spirit!!!
     
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  2. Cheap credit was the crack that kept the whole untenable universe of automakers/banks/consumers/credit raters afloat. Without cheap credit, consumers have to be more critical about their shopping decisions, banks have to worry about repayment--everyone does their jobs. With cheap credit, no one cares as much as they should. I think captive credit arms became the profit centers instead of facilitating sales and the quality of american cars became an afterthought to bean counters (to accountants, high quality = low ROI). Until our government liquidates their equity holdings after the GM IPO, no special financing agreements should be allowed. Make GM compete (and win) on product quality FIRST. Then, assuming the company doesn't crater again, cash out uncle sam, THEN allow the crack to flow once again. Otherwise, everyone will forget in 6 months time.
     
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  3. as with any debate involving banks, government, bailouts, etc i do wish more balance would be infused to the discussion. richard, great job here doing just that. we all know subprime credit was the straw that blew up a financially driven recession/depression. as always, once diagnosed, a radical swing the other way brings with it it's own problems. hoping GM and others can get things moving with loans that are certainly sub-prime but perhaps not completely unable to meet obligations.
     
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  4. I don't understand, GM sold off control of GMAC, and is simply shopping around now that it can, right?
    Why is this controversial?
     
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  5. Great, just what we need--more shaky loans to people buying more than they can afford. Didn't we just go through this?
     
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  6. Great piece, and Frank brings up good point about finding balance of making American cars affordable for consumers without busting the financial system in the process.
     
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  7. It makes alot more sense to me that financial institutions give out loans and NOT automakers- I think should automakers provide loans for reasons other then financial success they will go deeper into the red
     
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  8. Great move by GM-let those who are experts handle the financing. Car manufacturers should stick to producing cars.
     
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  9. It's fine, but you'll always get better financing at a credit union.
     
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  10. Oh no, not again! I hope people keep their senses with buying new cars.
     
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