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GM wants to sell to more subprime buyers
http://www.msnbc.msn.com/id/37179852/ns/business-autos/
How do you think this will turn out for GM? Do you think it's a good idea to be giving subprime loans out again? Do you agree that the market is prepared enough for GM to take on risky loans?
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I think that there is going to be both good and bad. I think it's okay that they want to make subprime loans as long as they don't make too many...and then bundle them and sell them as securities and CDOS...taking one step at a time might not be so bad, it may help out the economy.
ReplyDeleteGM has already been doing these "subprime" loans for years. Recently they did it and the government encouraged it as part of the "Cash for Clunkers" program. I feel that the market is prepared for GM to make these loans and even in the event that they fail, we have seen in the past that the government is willing to restructure the automaker in the event of a crisis. I feel that the real question is..are the people who work for GM and other auto companies prepared to suffer more job losses and pay setbacks in GM's attempt to spin some profit.
ReplyDeleteGM has no reason not to gamble, as Ashlee mentioned the government would likely bail them out again. GM is likely trying anything to turn a profit. How many more problems can the big three get into before they finally collapse for good? They have been seemingly teetering on the brink for some time now.
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ReplyDeleteI don't think this is comparable to subprime mortgages for two reasons:
ReplyDelete1) Mortgages are a much bigger payment and can have a much bigger impact on a person's financial condition. On the other hand, it is possible that a person with less than perfect credit could afford a car if they are managing their expenses.
2) I don't see any mention of adjustable rate loans, which is really one of the big issues with subprime mortgages. If these are fixed rate loans, the buyers may be able to afford them.
Also, I don't think this is just a risky ploy to get more sales. Honda and many other competitors are already doing subprime lending. Therefore, this is an industry trend, not another stupid move by management.
This seems much less risky than the subprime mortgages since the loans are smaller and I would imagine cars could be sold easier than houses if the borrower could not longer make payments. The article said that GM hasn't asked Ally yet to increase the number of subprime loans, but that they are under pressure to make more sales especially when compared to Honda's lease terms. I think over time, with the economy climbing out of the hole, Ally will most likely gradually expand its subprime loans since I'm sure they'd like to continue to see more business.
ReplyDeleteIn my opinion GM split off their lending arm for a reason. Having an external finance takes the automaker out of the financial sector and returns them to their area of expertise: automobiles. I understand wanting to sell more car faster but the reason Ally doesn't want to make the loans is because they are bad business. GM needs to sell cars, not make more bad deals.
ReplyDeleteTommy nailed it on the head when he said GM needs to sell cars, not make more bad deals. If GM needs/wants more people to start buying cars in order for them to sell their stock to the public, they need to come up with other ways then sub prime lending. It would get people to buy more cars but it could also turn into a big mess.
ReplyDeleteI agree with Matt that this should be looked at much differently than the subprime mortgage market. Cars are still a relatively large investment, but no where near the commitment of a 30 year mortgage. I think that it is good that GM is looking to stimulate sales, and another thing that should be considered is the number of Americans that may have poor credit ratings as a result of the financial crisis. Poor credit ratings may be more common than we think because of those hit hard by their defaulted payments during the crisis.
ReplyDeleteMatt made some good points, and I definitely agree with them. I think that the sales are only going to do good for the economy, and that it is the only way we are going to get ourselves completely out of this crisis.
ReplyDeleteThese don't look to be anywhere near as risky as subprime home loans so I have no problem with this. I feel that its important to keep the auto industry strong and if this helps sales than we should allow it, with oversight of course.
ReplyDeleteA $20,000 car and a $200,000 home are obviously much different. I don't think GM should emphasize trying to pursue sub-prime lending, but that they should at least consider expanding it from only 1% to at least 10% (half of Honda). I also think they would benefit from making their own loans because it would allow them to lease cars again. When available, leasing is a great way for car companies to make money.
ReplyDeleteI agree with Matt's point where he points out that there is no mention of variable interest rate loans. That was where people couldn't afford their mortgages because their interest rate went through the roof and they had no way to afford them. People could afford a car if was a fixed rate and they managed their expenses.
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