Tuesday, December 30, 2008

GMAC Ready to Lend Taxpayer Money to "Good People"

Another snow storm on tap for the entire day tomorrow. Well that's just aces! You all know how much I do love the wintertime.

GMAC Ready to Lend Taxpayer Money to "Good People"
While housing issues are correctly tapped as the major culprit in the credit bust, there are so many other areas that were grossly inflated during the credit boom. Think about home improvements, vacation destinations, Las Vegas traffic, and many other spaces where free credit via home refinancing spurred spending that was illusionary. Another key facet of the credit boom was the absurdly high new vehicle sales pace. All these things are now deflating and you the tax payer have been tapped for footing the bill for it all.

Today's news that GMAC, the financing wing of GM, was thrown a lifeline to the tune of around 6 Billion dollars was greeted warmly. Another day, another bailout. I know it gets repetitive and boring but this story has some choice words that warrant our review.
AP
GMAC loosens credit to make vehicles easier to buy
Tuesday December 30, 6:04 pm ET
By Bree Fowler, AP Auto Writer
GMAC uses $5B in aid to loosen credit for auto loans in effort to rev up sales
NEW YORK (AP) -- A $5 billion government bailout aimed at reviving General Motors Corp.'s ability to make car and truck loans has dealers hopeful that cash-strapped consumers will return to their showrooms.
GMAC Financial Services, the automaker's troubled financing arm, on Tuesday loosened its tight lending standards, which in recent months have made it more difficult for would-be car buyers to get loans. GMAC's move marks the first time that a financial institution has said it will use money from the $700 billion bank bailout to offer more affordable credit to consumers.
Michael Martin, who owns Chevrolet and Saturn brand dealerships in Manassas, Va., said he thinks the loans will be key to turning around the auto industry, adding that GMAC's lifting of credit restrictions sets an example for banks that have yet to use their bailout funding to free up consumer loans.
"I think these things really spur consumer confidence too," said Martin, who had already seen customer traffic pickup at his dealerships on Tuesday. "People are saying it's good to see GMAC back in the marketplace. Whether it's just a euphoric feeling or not, at least it's a positive."
GMAC said Tuesday that as a result of the government aid it will resume offering automotive financing to customers with credit scores as low as 621, eliminating restrictions put in place two months ago as a result of the tight credit markets that mandated a minimum score of 700.
Marc Cannon, a spokesman for AutoNation Inc., a Fort Lauderdale, Fla.-based auto retailer that encompasses 264 dealerships including 73 GM franchises, noted that consumers can faithfully pay their bills for years, but if they miss one or two payments along the way, their credit score can drop into the 600s.
"They're not lowering standards, they're bringing more people into the game," Cannon said of GMAC. "These people are still customers and they're still good people you want to help get into the right vehicle."

All that is wrong with the financial world is covered by this article. The colossal debt load of the average US citizen has crested to a point that even shopaholics are cutting back on consumption. While this should be seen as both necessary and long overdue we have the Treasury and FED machines doing everything in their power to get people spending money they do not have. A 6 Billion dollar cash giveaway to GM will not be used to restructure or revamp the company, but instead it will be used to make car loans to "subprime" credit rated consumers tempted by the zero percent finance car game. We must keep in mind that anyone can have a credit issue, and that spotty payment history is no reason to deny credit to "good people".

Banks right now are averse to lending to just about anyone. The US government has now become the only player in regards to home loans, and now it appears they will be the only player in the game for car loans as well. The powers that be are handing over our tax money to make aggressive loans in terrible economy. The thought process by which anyone thinks this will end well is lost on me.

The feverish pace of activity by the government should give us all pause. They must know something we don't to be chasing consumption regardless of the costs. I have always felt that stupid behavior and desperate acts are always the result of some kind of fear. What exactly is it that the US government is afraid of?

There are deep currents unseen that will need to be known soon. Whether China has something up it's sleeve is my guess. The people at the Treasury and the FED certainly are scared of something. Just what that is will become clear in 2009 I think. Any guesses?
Full Disclosure: I have no position in GM or any other automotive stock.

Have a good night.

2 comments:

Anonymous said...

The only reason they got the money was because of the giant hole it would have blown in the derivatives market. This was to save the banks and other leverage players. When they need more as they surely will they'll get that too, just like AIG.

Kevin

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