• Jul 26, 2010
We've decided to stop trying to guess what General Motors will do before its IPO – which might come next month or later this year or early next year. What we do know is that GM has wanted to secure a captive finance arm before an IPO, a process that looked unlikely, then fell off the radar entirely, and then, BAM!, GM whips out $3.5 billion to buy AmeriCredit. That has made at least one senator do a double-take, asking whether spending that much money and loaning to the subprime market is the best thing for the Detroit automaker to do.
Republican Charles Grassley is quoted by Bloomberg as saying, "If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first," adding that The General should remain "clear of repeating its effort to make high-risk car loans." He has written a letter to the inspector general of the TARP program seeking an inquiry into the purchase.

Grassley has little hope of scuttling the purchase, however. As long as GM stands by the terms of the bailout, it can do just about anything it wants, which includes buying a bank. The move is also explained, of course, as a way to bolster GM's bottom line, something everyone wants. Company CFO Chris Lidell notes that if GM can add just one more percent to the number of buyers – people with credit scores between 500 and 650 – that's a "significant" benefit, as well as the additional leasing it can offer. And that one additional percent of subprime purchasers would still leave it in-line with the industry average.

[Source: Bloomberg]


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  • 40 Comments
      • 4 Years Ago
      Here you go Wiggy

      Remember, Blue are DEMOCRATS.
      http://www.opensecrets.org/orgs/summary.php?id=D000000085




      This one is even better, these are the top contributors to Obama, who by the way out raised McCain almost 3 to 1.

      http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=N00009638



      Facts hurt, Barry is for sale.
      • 4 Years Ago
      "people with credit scores between 500 and 650:" Do not need new cars you fools.. This is the main reason for our economic woos we are in today. One big factor hindering us is the lack of mind set that "not everyone car afford to have nice new stuff". Say the economy does go up and GM barrows to whoever and the economy forms a bubble (again, and is actually forming again with an over valued market), that bubble bursts, people lose jobs (again), GM ends up losing again. Repeat pattern from a company that is refusing to learn. Whats even more irritating, is that GM is trying to take on huge risk at our expense, and now knows how to dump bad assets on us. People really dont realize that GM has screwed us over with bad company decisions. (Detroit looks like a trash hole, Government funds poured into it, many people out of jobs, small companies contracted with GM out of business, etc, etc)
        • 4 Years Ago
        did everyone already forget it was the adjustable mortgage's that started the domino effect...everyone was affording their payments in till the higher adjustable rates kicked in...

        IT's not a high risk investment, a House with 500K mortgage is a high risk investment. When you calculate the income to debt ratios, pretty much everyone with a steady job can qualify for a car as for the interest rates being determine on the fico score you have......

        The bad car loans did not tank the industry..
        • 4 Years Ago
        @Level:

        The economy collapsed as a result of many different things. It was like dominoes. Im not saying that it was only bad debts. But Bad debts are a huge part of it.
        I completely agree that some people with large credit scores are also risky. The Fair Isaacs system is flawed and many loan officers fail to understand how it actually works.(Its also amazing to be the amount of false rumors going around about credit scores)
        But. what you are saying about risk contradicts all Financial theory and contradicts the way the market runs today. High Risk = High returns; Low Risk = Lower Returns. This is the way our market is set up. Lower Credit scores = Higher interest rates; Higher scores = Lower interest rates.. Its all about Risk. Taking out Sub-prime lending is more risk. When a company takes on high risk it needs to hedge itself and GM is not in the position to do so. Im a huge advocate of making sure you are hedged enough from High risk before you make risky investments. Im also a huge advocate of people buying what they can afford. and if they make bad financial decisions or have been put into an unfortunate financial difficulty from a lost job, medical bills, etc. They dont need a nice new car. Start small and build back up to those nice things.
        • 4 Years Ago
        @LS7...

        Then the cost of a new car should have been kept in check.

        The cost of a new car has risen much faster in the last 40-50 years than real wages.

        Meanwhile many, many more families send their wives/mothers into the work force. Not a huge problem in itself, other than the societal decay of absentee motherhood, and children being barely raised by anyone, usually other than their own parents.

        Oh, and the cost of that childcare, and the cost of ANOTHER car.

        Henry Ford spoke about a family having *A* new car. Not 2 or 3 or 4, and the cost of a tract house, and a new Ford Model A being within an average worker's salary.

        Now most of Ford's cars larger than a Focus, EASILY exceed 30 thousand dollars, and fully optioned new cars crest higher than 40K, nearly equal to the household income average in this country.

        Not per-earner income.. HOUSEHOLD income. If both parents work, chances are both parents commute. That is TWO cars, not one. That is twice as much insurance liability, and fuel costs, and usually higher food costs from people eating at home less often.

        The micro-economics of an american household are DRASTICALLY different than they were 80-100 years ago, in Henry Ford's time.

        The tax rate has swung wildly in both directions since 1900, as well.

        And not necessarily for the better in every way.

        As much as I would like to afford a new car... There is no way I would take a 6 year loan out for one. I'd be hesitant to take out any more debt at this point, considering the economy, and the politics behind it.
        • 4 Years Ago
        GM is not the only maker trying to sell cars to people with credit scores between 500 and 650.

        I think after what Henry Ford did, the idea that the average American can't afford a new car is considered to be anti-American (anti-American Dream, if you will).

        I'm not saying people should live beyond their means, but if the working class can't afford a basic new car if they choose, then I think perhaps we have a problem with our economic system.
        • 4 Years Ago
        Its a high risk investment that a company that just filed for bankruptcy, got bailed out by the government and hasnt been approved for an IPO yet is trying to dabble in. There financials arent that great either. They are betting on a certain things to happen to become financially stable again. Its another dumb move..

        "I think after what Henry Ford did, the idea that the average American can't afford a new car is considered to be anti-American (anti-American Dream, if you will)."

        In response to this. This thinking is want got us in trouble in the first place. "everyone should be able to afford a home" Henry Ford may or may not have approved of people that have had financial issues and are either getting out of them or are still in them purchasing new things. It really doesnt matter. We now know today that it hurts more then helps. I dont thing Ford was meaning that people should have things that they cant afford. I believe it was more along the lines of making things that are nice that people CAN afford.
      • 4 Years Ago
      I see GM is back to its old tricks. Instead of focusing on making good AUTOMOBILES, they will spend all their time and effort on tricking deadbeats into taking loans they can't afford to pay back.

      Government Motors 2.0 -- Subprime loans R US!
      • 4 Years Ago
      The more I hear politicians open their yaps the less respect I am having for them.

      1. The large industrial complex is a necessary component of any solid economic entity. It provides both production and consumption to help drive the economy. Something had to be done or this country would be much worse off than it is now. GM could have just bankrupted and closed US operations, they already have more sales and greater profitability outside the US.

      2. By making an acquisition that may help sure the bottom line by providing additional avenues to provided loan and lease opportunities to potential consumers not a positive item?

      3. By suring up the bottom line and improving opportunities for increasing sales are you not improving the likelihood of a successful IPO?

      4. Is not the IPO a major component of how the government will get paid back?

      Get your head out of your rump, Charles Grassley. I think it is time that all politicians go back to school and relearn Economics 101 and 102.
      • 4 Years Ago
      Of course he didn't, he's nothing but an old hypocrite. He would have loved to see GM bite the dust and give the entire country to Japan and China. It's breathing jokes like Grassley that make my blood boil.
      • 4 Years Ago
      Did you hear Harry Reid say that without the government bailout, Ford wouldn't exist anymore? If his policies weren't so damaging to this country, he would be kind of amusing.
        • 4 Years Ago
        He's right. Mulally said it too at the time.
        • 4 Years Ago
        Please explain to me how exactly the U.S. government saved Ford, when the bailouts went to GM and Chrysler.
      • 4 Years Ago
      Sea Urchin, you know that most of the polls in 2008 had Obama and the Dems winning, right? Why would any corporation give to McCain and the GOP if they weren't gonna be power after the election? To be fair, that site shows that most of Grassley's contributions came from insurance and medical industries.

      http://www.opensecrets.org/politicians/summary.php?cid=N00001758&cycle=2010
      • 4 Years Ago
      Bank buddies? How about you visit Open Secrets and see who "collected" more from banks, wall street firms, hedge funds and others, Republicans or Democrats.

      Take a good look at Goldman Sachs and who they OWN from head to toe. Give you a little clue, Last name is Obama.
      • 4 Years Ago
      Politics and automobiles are so intervened these days.
      • 4 Years Ago
      Any ankle-biting socialist/liberal who disputes what this Senator is saying is too far gone to be worth spit. The fact is that the money that was dispensed to GMC was not for ACQUISITIONS - it was to stabilize them so they could survive.

      Let's put this another way - in a manner in which Socialists will understand. Imagine one of the banks that were bailed out buying a company that would "enhance" their business and were using the money from the bailout to buy that company! Do you think for a minute that these pinko frauds wouldn't be screaming louder than Barney Frank protesting the acquisition?

      I understand that GMC needs a finance arm, but this is the bed the company has made with its poor choices and its laziness. The American taxpayer isn't here to make GMC whole again inspite of their continued incompetent management. And since GMC has also lied about repaying its loan, I think they've demonstrated enough reason to deny them any latitude on the efficacy of buying a subprime and scandalous company (read about AmeriCredit!).

        • 4 Years Ago
        Most services in the United States are socialized dummy. Police, Fire Dept, schools, libraries, etc.
        • 4 Years Ago
        GM sold GMAC a few years back. The funny thing is that if GM takes AmeriCredit over they could call it GMAC, LOL.
        Lucknor
        • 4 Years Ago
        Let's not forget that GM sold off GMAC which we also had to bail out. And I guess it's just a coincidence that the recently passed consumer protection laws exclude automobile loans.

        If GM needs an in-house finance arm at this time they should buy back GMAC. I'm sure that they could get a good deal from the current Owner.
        • 4 Years Ago
        FYI - During the finance company bailouts, companies that received federal funds (I'd have said taxpayer funds but the annual debt shows taxes are not funding much of anything right now) did indeed swallow other companies. BoA bought Lynch, Wells Fargo got Wachovia. There are more, but that is enough proof.

        Some calling themselves conservatives seem to constantly miss the fact that the financial businesses received far more money and did pretty much as they pleased. They even state they paid back their portions, when much of TARP bought assets themselves, which of course are not part of any payback at that point.

        So either none of the bailouts should have been done in the first place (to be truly conservative), or the auto-side bailouts were every bit as worthy. And GM using its funds to better its sales is justifiable, as long as the credit side has some controls to prevent sub-prime meltdowns from affecting the nation as it did before.
        • 4 Years Ago
        Since when did GM sell GMAC? I could have sworn that they still own or partially own GMAC....
      • 4 Years Ago
      I have to disagree with my distinguished colleague from Nebraska. If the gentleman will yield….

      Try looking at this through a business prism and not a political one. Today the American taxpayer is a shareholder in the new General Motors. If this acquisition will enhance the prosperity of the business prior to the IPO resulting in a higher share value - that is good news to taxpayers.

      The political debate will come once the administration decides what to do with any “profit” from this investment bailout. If the White House decides they want to fund a new initiative to protect minority consumers from predatory lending or something just as asinine – then I suspect the GOP will scream and yell.

      I also wouldn’t be surprised to see how the IPO develops in conjunction with the election cycle. The administration and the DNC will more than tout the success of the bailout by claiming to have saved “an American industry from the brink of destruction”. While the one hand saves the industry with bailouts the other hand creates additional regulatory nightmares.


      On a similar note, recently I was listening to archived podcast from the guys here at Autoblog. I believe it was #134 or #135 where they stated “people in Washington are all driven around. They don’t drive themselves”. I assume they were referring to politicians, specifically.

      For example - The congressman I worked for drove a King Ranch F150 and a Camaro SS. Another member I knew drove a 1990 Chevy Suburban. Most, and I do mean MOST, members of Congress drive themselves around. Granted there are times when finding parking is challenging to a member of their staff may drive, but the idea that they have hired drivers is false.

      The reality is that isn’t much money in the MRA (Members Representational Allowance) for drivers and the like. True, certain positions within the leadership of government are required to travel with security. If Nancy Pelosi is being driven around in a B7 Armored Tahoe – you can’t really fault her for not driving a Camry.

      My point – you the AB Podcast was incorrect in their assumption that members of Congress don’t drive.
        • 4 Years Ago
        Urchin -

        You think its damaging? Have you seen what Ford has done in the last year alone? Heck today they introduced a new Explorer that I'm sure is going to kill the new Jeep and the Traverse.

        I'm sure if you conducted a consumer survey of the Big Three - a majority of people would immediately point to Ford NOT having to take the loan as an advantage.
        • 4 Years Ago
        I agree. I think most people would say that Ford not taking loans from the government is a substantial advantage for them. Even though they took over $1B in loans and are still taking more every quarter (read their 10-Qs).

        Declaring bankruptcy and taking large amounts of money from the government definitely hurt people's perceptions of GM. Converting the loans to equity has hurt those perceptions further.

        Ford has fared better, because they took far less in loans and their benefit from the handouts (supplier bailouts, cash for clunkers) is indirect. This allows people to (mistakenly) state that Ford did it all themselves. Combine this with Ford's very high-profile product announcements recently and they are much higher in the eyes of the consumer than GM or Chrysler.
        • 4 Years Ago
        Wow - I should really learn to proofread or hire an editor.
        • 4 Years Ago
        "Try looking at this through a business prism and not a political one. Today the American taxpayer is a shareholder in the new General Motors. If this acquisition will enhance the prosperity of the business prior to the IPO resulting in a higher share value - that is good news to taxpayers. "------------but it is damaging to companies that DID NOT take bailout money.
      • 4 Years Ago
      Let's just for 1 second forget about the politics side of this... and just focus on the 3.5m. GM SHOULD GIVE US THAT MONEY... because using TARP money (ie tax payers money) ISN'T PAYING US BACK. GM was proud and announced they paid us back but they used TARP money. I do realize that owning a financial arm would increase the value and would help us get the rest of the money back.
        • 4 Years Ago
        GM paid us back with money they borrowed, indeed. It's like if you get a line of credit on your house and then close it out without using it. You basically paid back a loan with the money you borrowed. It's a smart thing to do, because why pay interest on money you aren't using?

        As to GM giving us this $3.5B, how would they do it? They have no outstanding loans. All theirs are either repaid or converted to equity stakes. So instead it would just be a form of a massive, on the books, "donation" to the US government. This would directly affect the shareholders in GM, and since the taxpayer is the #1 shareholder, it would seem like a bad idea.

        The best structure for returning money to your equity holders (the taxpayers) is for the equity holders to sell their shares on to someone else. And this process is already under way.

        This righteous Senator should probably get a lesson in business and/or finance. Because his plan just doesn't seem like a smart way for the taxpayer to have a hope of getting as much of their money back as possible.
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