GM (&Taxpayers) takes on subprime car loans but it's less risky
By TOM KRISHER and DAVID PITT AP Business Writers © 2010 The Associated Press http://www.chron.com/disp/story.mpl/ap/business/7120730.html
Congratulations to all taxpayers, not only do we own the shell of an automaker, but we are now proud owners of a subprime car lender. Realize I have been a broken record, but what we are experiencing is a natural correction/shift caused by a Lack of Qualified Demand.
This exerp jumped out at me:
"AmeriCredit had already been helping GM with subprime loans, which now amount to 4 percent of the car company's sales. GM Chief Financial Officer Chris Liddell expects that to grow by a percent or two, a significant number considering that GM is on pace to sell over 2 million cars and trucks in the U.S. this year.
"About 40 percent of U.S. customers have below prime credit scores, Liddell said. "Clearly there's an opportunity to bring more people into our showrooms and help them with finance."Dealers and GM executives have complained for months that they're losing business because many customers can't get loans or leases.
Historically, the loan approval rate for borrowers with poor credit — those with scores below 620 — ran about 60 percent. Now, it's running at 9 percent. "
The problem is that 40% of the US population has below prime credit scores. The other other issue they should look at is that the median household income is roughly $50,000 per year. (Household= Family can include more than one) This means that half of the individuals are unable to buy $35-$50K cars.
Personally I do not know much about the car market (TMFDeej would be better qualified to comment), but car manufacturers need to design/plan/market their product to meet what their target market can afford. Qualified demand is the key. You can explain to me about the difficulties of self employed individuals etc, but bottom line is 40% of the country is "upside down."How is owning a subprime lender going to help GM dig out? I am assuming that government officials had to approve this transaction, and imagine it had to go to the top?
Should have prefaced this by stating that I do not have a background in finanace, never worked for a car manufacturer or a car dealer, but I have to say, "The Emperor Is Not Wearing Clothes".
Welcome comment and opposing views.