Need a new car? Don't qualify for a loan? Head over to GM!

Publius pro tem

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Need a new car? Don't qualify for a loan? Head over to GM! :applause:

GM Ramps Up Risky Subprime
Auto Loans To Drive Sales


By DAVID HOGBERG, INVESTOR'S BUSINESS DAILY - July 27, 2012

President Obama has touted General Motors (GM) as a successful example of
his administration's policies. Yet GM's recovery is built, at least in part, on
the increasing use of subprime loans.

The Obama administration in 2009 bailed out GM to the tune of $50 billion as
it went into a managed bankruptcy.
Near the end of 2010, GM acquired a new captive lending arm, subprime
specialist AmeriCredit. Renamed GM Financial, it has played a significant role
in GM's growth.

The automaker is relying increasingly on subprime loans, 10-Q financial
reports shows.
Potential borrowers of car loans are rated on FICO scores that range from 300
to 850. Anything under 660 is generally deemed subprime.

Subprime Key Driver
GM Financial auto loans to customers with FICO scores below 660 rose
from 87% of total loans in Q4 2010 to 93% in Q1 2012.

The worse the FICO score, the bigger the increase. From Q4 2010 to Q1 2012,
GM Financial loans to customers with the worst FICO scores — below 540 —
shot up 79% to more than $2.3 billion. The second worst category, 540-599,
rose 28% from about $3.4 billion to $4.3 billion.
Prime loans, those above 660, dropped 42% to $676 million.

GM Financial provides just over 8% of GM's financing. Prior to 2006, GM's
captive lending arm was GMAC, but GM sold a controlling stake in 2006.
GMAC later renamed itself Ally Financial and continues to provide the bulk of
GM's financing.
At the peak of the credit crisis and recession in late 2008, Ally announced
that it would move away from subprime lending.
By spring 2010 GM's new management, led by North American executive Mark
Reuss, wanted to move back into subprime, fearing that GM couldn't compete.

Subprime lending in cars is not as risky as in housing. Car loans are cheaper,
so customers have an easier time making payments. When they do go into
default, the cars can be repossessed and sold to recover some of the loss.
"The subprime market grew as a result of the recession," said GM spokesman
Jim Cain. "Our experience, however, is that with proper management they are
very good risks."

He points to GM's credit losses which have not risen above 5.5% since late 2010.
Nevertheless, since it acquired GM Financial, GM has seen its subprime loans
grow from about 4.8% of sales in Q4 2010 to 8.2% in Q1 2012. The industry
average is about 6%.

"Is GM taking on more risk than is safe given our uncertain economy?" asks
Edward Niedermeyer, TheTruthAboutCars.com editor-at-large. "They may be
trying to goose short-term sales with subprime lending to boost its stock
price, which is tied to the government getting out of its GM investment."

GM still owes about $26.4 billion in direct aid to the federal government.
The Treasury owns 26.5% of the automaker, or 500 million shares.
The stock price would need to be 53 to recoup those taxpayer costs.
GM shares closed Friday at 19.67 after hitting a post-IPO low on Wednesday.


Subprime 'Double Standard'
When pushing the Dodd-Frank financial overhaul, Obama told Americans, "you
have a stake in it if you've ever tried to take out a home loan, a car loan, or
a student loan, and been targeted by the predatory practices of
unscrupulous lenders."

While the administration has targeted subprime mortgage lending, it seems to
have turned a blind eye to auto subprime loans.
"The Obama administration has seen to it that the Consumer Financial
Protection Bureau is important in the subprime mortgage arena," said
Niedermeyer. "But it has exempted auto-finance from that. I definitely think it
is a double standard."

He also wonders if the Treasury will be able to recoup its GM aid:
"The conventional wisdom has been that consumers have too much debt and
need to de-leverage. Having that weak underlying foundation makes this rise
into subprime lending by GM more worrisome."


GM Ramps Up Risky Subprime Auto Loans To Drive Sales; Taxpayers Still Own 26.5% - Investors.com

I won't even mention what went un-mentioned - the stake that labor unions now have in GM and Chrysler... :rolleyes: :facepalm:


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yawny

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Hey, why bother being fiscally responsible when you can count on the government to get you out of any massive hoe you dig yourself into?
 

Publius pro tem

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I saw no mention of interest rates.
I'm guessing there will be nothing in single digits offered...

Word to the wise - after the finance guy has "helped" you buy a car - add up your payments.
Write that total down.

Now, what was the advertised price when you agreed to buy it?
Subtract the car's price from the sum total of your payments.

That's what it cost you for the finance guy to "help" you, and it will be WAY into the thousands.


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Drew224

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It's funny, too, because a lot of the people who'd BUY a new GM are smoking crack.
 

bertzie

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Doing heroin is for people that like doing heroin. Doesn't make it a good idea.
 

yawny

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Or.. for people who like new cars.


Cars are "investments", they are "expenses". If you can afford a new car, and want one, go ahead and buy it.

I say... outlaw auto loans that run more than 40 months. It's time people buy cars they can afford, and auto companies make cars that are in the realm of possiblity for people who make less than $20 an hour.

Schools should have to teach every student about fiscal matters, as in, it should be a requirement for graduation, whether you're going straight into the workforce or to college, you should know what you're getting into and what banks and the like are talking to you about.

No one should get that long of a loan, but cars are still priced, to some extent, as a luxury, not a commodity.
 

bertzie

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Ok, so all new car purchases are stupid. Care to tell me why? Or is the rush of being a contrarian enough for you?

Not all of them, just most. A new car takes a huge hit in value the second you take it off the lot. Financially, you're better off buying last years model and saving a ton of money.
 

yawny

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Not all of them, just most. A new car takes a huge hit in value the second you take it off the lot. Financially, you're better off buying last years model and saving a ton of money.

A car is a status symbol, especially a new one. Financially, you're right, there's no reason to ever buy a new car. Then again, there's no reason to buy a car that costs any more than a few hundred bucks as long as it runs, because even if you have to repair it every other month, you're still losing less money.

Cars = money pits
boats = money chasms
old guitars = safe investment
 

Leumas

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Not all of them, just most. A new car takes a huge hit in value the second you take it off the lot. Financially, you're better off buying last years model and saving a ton of money.

Maybe. IF you save a lot of money. When I bought my car the year old models were priced less than $1000 below that of their new counterparts. Also, being used, did not qualify for the financial incentives that the new ones did. So, at least in my case, that made no sense as once you factored everything in, the used cars were almost identical in price but with miles on them.
 

Publius pro tem

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Not all of them, just most. A new car takes a huge hit in value the second you take it off the lot. Financially, you're better off buying last years model and saving a ton of money.
LAST year?

4 years is more like it.
The depreciation curve has leveled off.
Find one with low miles and pristine condition - price might jump 5% over the older beat-up ones.

What do YOU drive?


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bertzie

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LAST year?

4 years is more like it.
The depreciation curve has leveled off.
Find one with low miles and pristine condition - price might jump 5% over the older beat-up ones.

What do YOU drive?


.

As stated several times on this forum, I drive a 78 Thunderbird.
 

Publius pro tem

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What motor, transmission?

When I was in high school, I pulled a transmission out of a '77 or '78 T-Bird.
It was a cast-iron FMX.
A real relic from the past - still in production, against the guesses of the guy I worked for.


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bertzie

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302 Windsor motor, believe it's a c4 transmission.
 

Pinkie

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I usually buy one that has come off a lease.
At least two years old so it has low miles and still has the remainder of the warranty.
Never do a 5-6 year loan ever.36 months is my limit.
Sub prime killed the housing market now the government thinks it will work for the auto industry?
A pack of real smart shmucks huh?
 

Caoimhin

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I really like the Buy Back special they got going on. If I was into GM vehicles I think it's something to take advantage of.
 

tazzboy

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Well if GM is looking to go bankrupt again or for another bail out then they have indeed found it.
 

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