Subprime Financing Resumes at GMAC

GM sales are down 51%. GM is sitting on tons of inventory it cannot get rid of. What to do?

Please consider GMAC to resume car loans to subprime borrowers.

GMAC Financial Services said it will resume making car and truck loans to subprime borrowers and will lower inventory financing costs for cash-strapped auto dealers, part of a series of moves intended to spur sales at General Motors Corp.

The moves announced Wednesday come as the embattled automaker races to restructure and get customers back into its showrooms amid growing risk that it will be pushed into bankruptcy by the Obama administration.

GM, whose U.S. sales plunged 51 percent in the first two months of this year, also began rolling out a program that will cover some payments for customers who lose their jobs after buying a car, an incentive intended to bring back shoppers worried about job security amid the recession.

GMAC, which provides financing to many GM vehicle buyers, said it would make at least $5 billion of credit available to customers over the next 60 days, a period during which GM has to prove to U.S. officials it can win sweeping concessions from bondholders and its major union.

The finance company plans to resume accepting finance applications from car and truck buyers who have credit scores below 620, a line dividing prime borrowers from less creditworthy subprime borrowers. The median U.S. credit score is 723, according to Fair Isaac Corp's myFICO unit.

Zombies Continues To Haunt

GMAC is a failed corporation. It should have gone under. Instead, the Bush administration kept this zombie corporation alive long enough to haunt taxpayers under the Obama's regime.

Flashback Monday, December 29, 2008: Paulson's $6 Billion Foot In The Door Play

The U.S. Treasury committed $6 billion to support GMAC LLC, the financing arm of General Motors Corp., the latest step in the government’s widening effort to keep the largest U.S. automaker out of bankruptcy.

Treasury said it will purchase a $5 billion stake in GMAC, and lend $1 billion to GM so the automaker can participate in a rights offering at GMAC to support the lender’s reorganization as a bank holding company. The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC.

U.S. plans to ease GM into bankruptcy

Inquiring minds are reading U.S. plans to ease GM into bankruptcy.

The Obama administration is seeking to ease General Motors Corp into a "controlled" bankruptcy by persuading some creditors to agree to a plan that would divide the company into two pieces, the New York Times reported on Wednesday.

Citing people briefed on the matter, the Times said the plan is to push GM into a structured bankruptcy "somewhere between a prepackaged bankruptcy and court chaos," using taxpayer financing for leverage.

Plans are still under discussion and details are subject to change, the report said.

Desperation At GMAC

As long as "plans are still under discussion and details are subject to change" GMAC has nothing to lose and everything to gain by resuming subprime financing. Taxpayers are going to foot the bill for this complete nonsense, but from the point of view of GM and GMAC, subprime financing makes perfect sense.

This is exactly the kind of economic stupidity one should expect to see when government interferes in the market.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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