GM Is Back In The Subprime Lending Business, Baby!

GM has agreed to buy subprime auto lender AmeriCredit Corp for $3.5 billion, bringing the auto company back into the lending game. GM, of course, used to own GMAC, now separate and known as Ally bank. GMAC was created to supply the financing for GM cars, but also got into subprime mortgage lending through its Residential Capital unit — and, well, you know how that turned out.

Analysts seem to think that the move is largely positive, because lack of financing is hurting auto sales. Still, the word “subprime” makes people sad:

“If it’s properly managed it’s a positive, but if it’s driven into the ground it will be a large negative,” [an analyst] said. If the company starts offering car buyers 7 year, no-interest loans with nothing down, then it could get into trouble again, he added.

GM gets back into the subprime loan business [Marketplace]

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  1. areaman says:

    If the company starts offering car buyers 7 year, no-interest loans with nothing down, then it could get into trouble again, he added.

    That’s not that far off from the truth. My friend bought a $30k truck with $2k down and 6 year loan.

    Looks like they are going back to their old ways. They’re probably using “That (meltdown) was a one time event.” logic.

    • apd09 says:

      but at least they can repo a truck and have a better resales value on it than a 350K mortgage when the property is only worth 250K and the loan had a variable rate where the payment ballooned up to 3500 and they never verified income.

      I am ok with them handling auto loans, but would be wary if they got into the mortgage game again.

      • Nigerian prince looking for business partner says:

        There’s definitely recourse with a repo but on a 5 or 6 year car loan with no down payment, you can virtually guarantee that the loan will be badly underwater. There are also many people who roll existing car loans into new loans when they trade in, which just seems to be a incredibly bad idea.

  2. ARP says:

    Subprime lending isn’t bad in and of itself. It’s when you overleverage yourself and assume everything will be rosy until the end of time that it becomes a problem. If they can keep their reserves/ leverage ratios in check, its a perfectly logical business to be in. Most major car companies have a financing arm. Whether they run it in house, or immediately sell the loan is another story.

  3. dolemite says:

    They might not have to issue subprime loans if they were a good car company, like Ford. No bailout, no bankruptcy, and they have a HOT line of cars now. It’s like every car is a homerun, while I still struggle to find anything from GM/Chrysler/etc that I’d even want to buy. Give me a Fiesta, V6 or V8 Mustang, Fusion, or F150 anytime you want. If they had been out a year earlier, I’d have a Fiesta instead of my Hyundai, but oh well.

    • Nigerian prince looking for business partner says:

      In my neck of the woods, absolutely every car dealer advertises sub-prime loans: “Bad Credit? NO PROBLEM!” or “We’ll finance you or the car is free!”.

  4. TheFinalBoomer says:

    I used to work for ResCap in IT, was actually an awesome place to work, great managers and employees and a fun but professional atmosphere. Too bad the business had to ruin it!

    • TheSpatulaOfLove says:

      We may know each other in a different life. I used to call on ResCap IT before they imploded.

      I hope things worked out for you – I know you guys went through some hell.

  5. gedster314 says:

    Here we go again, GM is falling into their habits . How much is their next governmental cash infusion going to cost us? My bet is they will be bailed out within one year of the release of the Volt. I also suspect that government will be the biggest purchaser of the Volt.

  6. AngryK9 says:

    My car (a Chevrolet) is currently financed through AmeriCredit. It was originally financed through Huntington Bank, but before I could even make the first payment (within 7 days after driving the car home) AmeriCredit took over the loan.

    If GM is buying out AmeriCredit, does this mean I should look forward to an outrageous interest rate increase, an additional year or two of payments added to the last year and a half of my five year loan. incessant refinancing offers, and nonstop “warranty expiration!” junk mail?

    • AllanG54 says:

      You know as well as I do that they can’t change your contracted interest rate or any other part of the loan so stop griping. You sound like a child.

      • AngryK9 says:

        How foolish you look when taking seriously a bit of sarcastic facetiousness. You sound like a dumbass.

  7. dcmike says:

    This is probably a good thing if well managed. People with less than perfect credit need to be able to get loans. By having a captive lender, it makes it easier for GM to offer credit deals to both prime and sub prime buyers. By having to go through 3rd party lenders, GM has to subsidize someone else to make the loans that Ford, toyota, etc can do on their own. Sub prime mortgages is very different than sub prime car loans. People will default last on their car loans, also there is very nice collateral (the car), to back the loan, rather than some hard to sell real estate with an inflated appraisal.

  8. AstroWorn2010 says:

    My dealings with AmeriCredit have not been good at all. They still list a car I payed off 3 years ago as active on my credit report. I’ve tried to get it fixed but no luck so far, good thing I am not trying to get another loan anytime soon.

    • AngryK9 says:

      Does it show as an account that is still open? Should be marked as “closed” or “satisfied” or some such, don’t really recall. I’ve been dealing with them for a bit over 3 years now and have never had a problem with hem. They did not charge me a late fee on the two payments I was late on last year, which was nice…

  9. KlausKinsky says:

    I think the bigger story hear is that these loans won’t be covered under the new financial regulation laws because they are car loans.

  10. shoan says:

    all this talk of prime and sub prime auto loans. Where exactly is the score transition from sub prime to prime?

    • AngryK9 says:

      Joe’s 700 FICO score is going to put him in the prime category whereas Bob’s 500 FICO score would put him in the sub-prime category. I would imagine that the line would be somewhere in the middle of that. Maybe around 600.

      • PaRa02 says:

        600-700 is sub prime, In my experience 500′s are the toughest to finance since you know they have a history of not paying their bills,

        This is actually great for GM, you know being able to sell cars to 40% of the American populace.

  11. JonBoy470 says:

    Cars are at least fairly liquid, as opposed to homes. It’s not too hard to flip a car once you’ve repo’ed it.

  12. smo0 says:

    Wow… I suppose I should have guessed they were subprime… AmeriCredit gave me my first, and second, car loan…
    I had a credit score of 520 when I bought my first car (stupid teenage stuff with a first credit card) they gave me a loan at 21.9% interested… 10 months later, I ended up getting a different car, this time, interest was 14.9%.

    I gotta say, I’m kinna thankful for them for taking a chant on me….
    because 5 months after that, my credit was up 100 points and I ended up getting my VW GTI with VW Credit at 7.25% – real credit builders, those car loans….