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Thread: Truth is stranger than fiction - GM buys Subprime Auto Lender

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    Default Truth is stranger than fiction - GM buys Subprime Auto Lender

    (snip)DETROIT | General Motors Co. will buy AmeriCredit Corp. for $3.5 billion, a deal that allows the automaker to expand loans to customers with poor credit and offer more leases.

    Those are key areas where GM must accelerate sales.

    Company executives hope the acquisition will raise the carmaker’s value ahead of a coming public stock offering. The government bailed out GM last year, and the IPO will help it get rid of part of its 61 percent ownership stake.

    The transaction will give GM an in-house financing arm for the first time since it sold control of GMAC Financial Services in 2006.

    “Our dealers have been telling us that not having an in-house finance arm hurt our ability to finance certain loans and leases,” said Edward E. Whitacre Jr., GM’s chief executive. “It hurt our ability to meet rising customer demand for GM cars and trucks. Now we’re going to fix that.”"(snip)

    (snip)"GM says that its partner, Ally Financial — formerly known as GMAC — will continue to finance GM’s dealer inventory and make loans to buyers with good credit. GM sold controlling interest in GMAC in 2006"(snip)

    (snip)"Only 4 percent of GM’s sales come from subprime buyers, those with credit scores below 620 on a 300-to-850-point scale, but about 40 percent of U.S. customers have below prime credit scores.

    Jesse Toprak, the vice president for industry trends at TrueCar.com, said GM’s sales could jump as much as 20 percent if it aggressively courts subprime buyers."(snip)




    You can't make this s#!t up, folks !


    Indeed, there is no doubt that GM dealers are experiencing rising 'demand' from potential customers with low credit scores. These potential customers undoubtedly want / need new cars, but have been turned away by other dealerships due to one small detail ... their ability to come up with heavy down payment money ( in the absence of a 'cash for clunkers' US taxpayer handout ) and/or their ability to actually repay an auto loan on time is very doubtful !!! But hey, no problem, we'll find a different way to let US taxpayers ( i.e. the 61% owners of GM ) subsidize the sale of new cars to people who can't afford them ... simply start writing low down payment high interest rate subprime loans to enable the initial sales, and let the future loan losses ( and US taxpayer losses / bailouts ) fall where they may !!!

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    Default Re: Truth is stranger than fiction - GM buys Subprime Auto Lender

    however, the 'gold foil hat' crowd points out that there indeed may be a different true purpose ...

    (snip)"Quite aside from the costs of rescuing GM itself, the U.S. government spent a whopping $17.2 billion bailing out GM’s subprime lender, GMAC. It’s never going to get repaid in full: at the moment estimates of total losses on that deal are running at about the $6 billion mark.

    So the government knows full well how dangerous and costly it can be for GM to own a subprime lender. What’s more, the government currently controls GM, holding an equity stake of about 61% of the company.

    So what on earth is GM doing spending $3.5 billion on buying a subprime lender? It’s not enough to simply bail them out, it seems: the government is now using taxpayer money to buy out AmeriCredit’s (ACF) shareholders at a 24% premium to Wednesday’s closing price.

    I do appreciate that GM needs to be able to sell cars to people with bad credit. But there’s no indication that GM is a good owner of subprime lenders — quite the opposite. AmeriCredit is already working with thousands of GM dealers, and the two could easily start rolling out GM-branded products across GM’s dealer network even without an acquisition.

    I’m suspicious at the speed with which GM is moving back into the world of financial services: I’m not sure it bodes well for the company, which really should be sticking to building cars, keeping its credit operations outsourced.

    If GM wants to build a strategic relationship with AmeriCredit, that’s fine, and anybody who’s bullish on GM would be more than welcome to buy AmeriCredit shares at the same time. But I see no great upside — and lots of danger — in bundling the two. And in any case the last person who should spend $3.5 billion on a subprime lender is anybody at the Treasury"(snip)

    from


    in other words, this may amount to a 'stealth bailout' of AmeriCredit ... or at least that company's major stockholders.

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    Default Re: Truth is stranger than fiction - GM buys Subprime Auto Lender

    As I understand it, GMAC is no longer affiliated with GM. They have been trying to sell without in-house financing. Pretty hard to do when recently, what, 25% of the population has a shit credit score and more are coming?

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    Default Re: Truth is stranger than fiction - GM buys Subprime Auto Lender

    ^^^ yes that's correct that GMAC was 'separated' from bankrupt GM and Chrysler. GMAC received a huge TARP bailout which it is arguable will never be fully repaid ( the link estimates a $6 billion loss to US taxpayers ) ... and as such must comply with US gov't established lending standards. GMAC still provides funding to GM and Chrysler dealers and customers whose credit ratings are above those gov't established lending standards.

    Obviously AmeriCredit is an independent publicly traded 'finance' company whose business is centered on making high risk loans. AmeriCredit has had a rocky road over the past couple of years, with stock shares falling from $30 to $3 at one point. However, since this buyout was announced those stock shares have rebounded to $25.

    AmeriCredit already 'works with' thousands of GM dealers, and could have expanded to tens of thousands of GM dealers providing someone was willing to put up capital to underwrite additional loans. And THERE lies the rub ! Arguably, in the absence of additional private sector investors being willing to take a chance on potential AmeriCredit future subprime loan losses, the US taxpayer ( via GM and TARP ) has been involuntarily forced to put up that capital and assume that loss risk instead. Or put another way, AmeriCredit has now achieved re subprime auto loans a de-facto Fannie Mae / Freddie Mac status re subprime mortgage loans ... where loans will be made to people who are likely to default based on US taxpayer 'guarantees', and where any resulting losses will be ( indirectly ) shouldered by the US taxpayer !

    (snip)"The buyout will affect about $532.6 million of AmeriCredit debt. The company currently holds a Fitch long-term issuer default rating of "B+" and a senior debt rating of "BB/RR3."

    Fitch said it will now analyze GM's credit profile, saying AmeriCredit's ultimate rating will be affected by the strength or weakness of GM.

    S&P placed its "B" rating on CreditWatch, saying it needed to better understand the implications of GM's ownership of the lender."(snip) from E-Trade


    Yes in terms of GM operations, this is likely to precipitate a wave of new car sales. This is not to say that these new customers will actually be able to pay for the new cars they will be buying ... but it does mean that ( thanks to indirect US taxpayer backing ) these new customers will be able to drive away in a new Chevy where they could NOT drive away in a new Ford or Honda or Toyota due to poor credit score / lack of actual ability to repay.

    The 'gold foil hat' crowd is wondering whether there will be future GM policy directives which, like subprime mortgage delinquencies, will delay / prevent repossessions or allow for US Taxpayer subsidized 'refinanancing's of these subprime auto loans ! Government Motors indeed !

    ~
    Last edited by Melonie; 07-25-2010 at 04:25 AM.

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    Default Re: Truth is stranger than fiction - GM buys Subprime Auto Lender

    Well, that is one way to sell more cars, if you don't count repossessions. What a business model.
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    Default Re: Truth is stranger than fiction - GM buys Subprime Auto Lender

    ^^^ apparently, strategic thinking says that the additional new Chevy sales will occur this year, while the repossessions / additional US taxpayer bailout 'bill' won't be recognized until next year ! In either case, GM, the UAW, and AmeriCredit stockholders all benefit !

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    Default Re: Truth is stranger than fiction - GM buys Subprime Auto Lender

    Again, some business model. No wonder they got into problems with that kind of thinking.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

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    Default Re: Truth is stranger than fiction - GM buys Subprime Auto Lender

    ^^^ in actuality, they DON'T have problems with that business model. UAW workers get paid for making GM cars, (near future) GM stockholders plus GM dealers earn profits fro the sale of new GM cars, AmeriCredit earns profits for servicing new subprime auto loans etc. The only place that a 'problem' is likely to exist is the US taxpayer who will be asked ( directly or indirectly ) to bail out the new subprime auto loan losses in order to ( once again ) keep those UAW workers employed !

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    Default Re: Truth is stranger than fiction - GM buys Subprime Auto Lender

    I really think we the taxpayers and, thru us, our congressmen, are just to pissed off to do this again. So it will fall on the owners of such a business. As it certainly should.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: Truth is stranger than fiction - GM buys Subprime Auto Lender

    As a taxpayer, I vote my proxy of our controlling interest in GM that they NOT be allowed to buy a company so they can give loans to those who can't pay. If they can't sell enough cars to people who CAN pay, it's time to shrink the company...not build another disaster that will need bailing out.

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    Default Re: Truth is stranger than fiction - GM buys Subprime Auto Lender

    ^^^ well at the moment the majority owner of GM IS the US taxpayer ( 61%) - who will also soon be the 61% owners of AmeriCredit !!! So when the losses start piling up, it's already a done deal that the US taxpayer will bear the brunt of those losses. And unlike stockholders, individual taxpayers don't get a vote re GM operations !!! The people who DO get a vote on behalf of the US taxpayer i.e. Barack Obama, Tim Geithner etc. have more to 'fear' from the UAW than they do from the US taxpayer ( or at least think they do ).

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