I found this quote from GM Sales & Marketing chief to be astounding:

“’Six hundred twenty is not a subprime score,’ GM’s sales and marketing chief Mark LaNeve told Automotive News.  ‘That’s a very creditworthy buyer.  Hopefully, we’ll have access to more of the market that is out there.’”
– Automotive News (12/30/08)

Bill Ryan of Portales Partners adds the following:

“We would like to sputter in shock and disbelief. General Motors Acceptance Corp. (GMAC) lost $5B in the 9 months ending September 2008 (on an operating basis). It has $100B in subprime and nonconforming mortgages through its ResCap subsidiary, and the government just lent them $5B at an 8% interest rate.

In addition, General Motors (GM) just announced a 0% financing option to car buyers.

So it turns out that we are now subsidizing a globally uncompetitive carmaker that does not understand what qualifies as a subprime FICO score and is offering 0% loans financed by a government (taxpayer) investment that costs 8%.

We guess they are hoping to make it up on volume.”


FYI: Subprime is defined as those credit applicants with a FICO score below 660. Hence, GM plans on shoveling its excess inventory out the door — with a 8% hit on the financing — and the taxpayer bailout holding the bag.

A brand new chapter on Moral Hazard has just been written. I expect will will see significant costs for this profligacy down the road.

Category: Bailouts, Consumer Spending, Credit, Economy, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

63 Responses to “GMAC: 0% Financing for Subprime FICO Scores”

  1. KJ Foehr says:

    If this keeps up the USG will be subsidizing the entire economy. The government must be scared to death of a complete collapse to allow such a thing to happen. Capitalism appears to be dead for the foreseeable future.

  2. MAL says:

    Sick! Equity AND most debt holders should be wiped out. Yet another case where if you are not inside, you are outside.

  3. wally says:

    Out of control.
    I recommend shooting every tenth one to bring the others into line.

  4. leftback says:

    The 10-year note seems to be listening, there is a nice move in TBT right now.

  5. DL says:

    I so dislike that term “moral hazard”.

    There’s been 5-10 trillion dollars worth of bailouts, backstops, stimulus programs (including Obama’s), and buying of assets by the Fed.

    And all that we can say is that there is a risk of a morality problem?

  6. I was wondering if you were going to hit on this latest GM management brain cramp when I heard it on the news.

    0% financing was what got them into this mess in the first place. They started that suicide mission in the early 00s when people stopped buying their cars. It took sales away from today and gave them to back then. Now they want to pull sales out of the future and have them for today

    Part of GMs problem is no forward thinking. They have done it again and three years down the road they will be needing another bailout because everyone who is still foolish enough to want a GM will have one at 0% financing.

    They need to get to a place where they are right sizing production, not supersizing it. With this brilliant 0% financing move they have just defaulted on their loan IMO.

  7. Andy Tabbo says:

    Is this for real? Are they really doing this? This whole thing is just one huge disaster. It’s pretty easy to see what’s going to cause the final fifth wave down in 2009. Humpty Dumpty’s men are doing everything they can to put Humpty back together again (banks, homebuilders, autos), but Humpty has shattered into a trillion little pieces.

    Final fifth wave are characterized as slower moving events, compared to third waves. I like to think about fifth waves as the “acceptance” phase, similar to the five stages of grieving. The only question is was 919 the “high” of the Fourth Wave? Or, can we break through 919 and power to 1008 – 1030 zone?

    Right now the question is too difficult to decisively answer and therefore I’ve had no positions in a few weeks.

    I believe that “markets follow the path of greatest pain for everyone.” My gut says that the most painful path for most would be a 3-4 week rally to begin the New Year, thus generating a ton of optimism. Then BAM….the market falls 30-40% until late Summer.

    If we can break 919, it sure looks like we could run to 1008-1030 zone, which would constitute the Second Greatest Selling opportunity ever. Of course the best selling opportunity ever was late May 2008.

    - AT

  8. GB says:

    I think I smell a new chapter in the book… stop the presses…

    Seriously though I think we will see more of this as lawmakers do the PR thing and not the right thing. Is it really moral hazard when you have the blessings of the media and congress?

  9. karen says:

    AT, I am as freaked out as you are. Why would a sane person invest in this economy? I am also a true believer in “markets follow the path of greatest pain for everyone.” As a masochist, this market has been good to me : )

  10. equiv says:

    Will this mean that they will have to go to congress to ask for more money once they figure out that 0% financing won’t cover a 8% debt?

  11. DL says:

    AT @ 1:53

    I would agree that if the market can rally throughout the month of January, then a 30% decline thereafter is in the bag.

    But I don’t think the S&P has enough steam to get through 919 (in January).

  12. Mannwich says:

    Just trying to keep the credit bubble game going. It’s not going to work.

  13. leftback says:

    AT: I like the idea of a rally into the inauguration and then the acceptance phase when the Street finds out what the Big O has in store for them. Looks like we may blow through 915 today or Friday, this market has the Big Mo.

    I am long oil (Karen’s idea, against my better judgment – many thanks) and short the 10-year (my idea, against everyone else’s better judgment) today so I am having an absolute blast watching this move here.

    ’08 is going out with a bang, apparently. What an absolutely amazing ride for traders, investors, bloggers and macroeconomic spectators alike. We shall never see its like again.

  14. Steve Barry says:

    I don’t get angry anymore…I’ll get even…I am shorting it all to, yes, a smoldering crater. They may as well just send the TARP money straight into my account.

  15. Steve Barry says:


    Your comment about moral hazard made me chuckle…you need to understand what it is. An example of “moral hazard” is someone taking out a $2 Million fire insurance policy on a building worth $1 Million…they now don’t care if the building burns down and might take stupid risk with electrical wiring, etc. In the economy, it is when people think that the Fed for example,will always insure, or bail out losses and that encourages stupid financial risk taking.

  16. Steve Barry says:

    Remember this financing arm is run mt THE J. Ezra Merkin Esquire….you get to lose money in style.

  17. karen says:

    This is a fiat world; expect the unexpected.

    Remember Zimbabwe.

    Don’t cut off your nose to spite your face.

  18. DL says:

    SB @ 2:21

    If it’s just a small building at stake, then, O.K., it’s morality.

    But when a 14 trillion dollar economy is at stake, that’s something else.

    Personally, I think that the term “disaster hazard” captures the risks (that we face the next time around) better than “moral hazard”.

  19. leftback says:

    905 on the SPX. Bingo !!!!

    Fire up the ol’ barbecue, there, Brucey. It’s burger time.

  20. ElvisP says:

    So no one can fail. Even bad business is supported. Can someone say a CDS meltdown time-bomb? Just wondering.

  21. karen says:

    Leftback, I really wish you hadn’t said this, “We shall never see its like again.” That virtually guarantees us more of the same…

  22. leftback says:

    Look at this massive bull move in crude.
    Some tools must have been short (GS prop trading, hopefully).

    What up deflationists? – look at this thing go – this is a brutal squeeze.
    A great way to finish my year.

  23. Mannwich says:

    @ElvisP: Au contraire, plenty of the “little people” have failed numerous times and are still failing as we say goodbye to ’08.

    @karen: LOL. Excellent point. It’s like saying “housing prices never go down”. My new motto is when someone says “never” (like the thought I immediately had when my real estate agent told me in ’05 that “housing prices never go down” in the Twin Cities), it means just the opposite, and that it is in fact a shoe-in to happen.

  24. bonghiteric says:

    The homebuilders have been consipicuously absent from the headlines regarding TARP funding. Why?

  25. Mannwich says:

    @bonghiteric: They (and the CRE folks) will get theirs in ’09. Mark it down. Those two are next on the list in the feds’ futile attempt to keep this farce going.

  26. leftback says:

    @ Bonghit: Because the homebuilders were a proximate cause of much of this carnage and deserve nothing.

  27. Winston Munn says:

    “…markets follows the path of greatest pain for everyone…”

    I like that. Fits in with a some of my theories:

    Politicians follow the path of least logic.
    Economists follow the path of the currently revered mistake.
    Central Bankers do not follow – but they are currently revered.

  28. Pat G. says:

    I find the GMAC bailout hilarious. Yesterday, AP quoted them “GMAC said Tuesday it would immediately resume lending to certain customers it had previously said were too great a risk for auto loans because of tight credit markets.” In another article, Reuter’s quoted them “GMAC was unable to offer such low rates to consumers because its lack of funds, GM said.” Apparently GMAC can’t keep its stories correct. And then later on GMAC’s website they said that “it will offer auto loans to customers with credit scores as low as 621, eliminating restrictions put in place two months ago that required a minimum score of 700.” So, now the FED (with our money) is coming to the aid of all those folks who can’t afford a house or a vehicle on thier own. Isn’t capitalism grand?

  29. Kelja says:

    I had to register just to comment because this pisses me off.

    GM & GMAC bailout, and all the others, are a bunch of flying, flaming dog doo.

  30. leftback says:

    @ Pat:

    A chicken in every pot. An SUV in every garage. A bonus for every investment banker.
    GDX, FXY, USO and TBT in every intelligent portfolio…??

  31. wunsacon says:

    I believe we should try to avoid a deflationary spiral by “bailing out Americans” (taxpayers, consumers, homeless, etc.) with per capita payments, to help them restore their balance sheets (which many will simply spend on groceries — so this takes the place of some food stamps we would otherwise have to print). I believe that’s an important goal.

    But — sorry at this point to repeat what y’all said — this policy of bailing out miscalculating investors and miscalculating businesses is sickening. This is a completely unjust, inefficient, and probably ineffective approach to combatting deflation.

    People don’t need to lease a new SUV every 3 years. This is maddening.

  32. I’m not sure which story caps the year for the stupidest crap the feds could have ever come up w/–this one, or the $500b push to lower interest rates on mortgages so that we can fix the problems caused by, well, interest rates that were too low on residential mortgages.

    But like AT said and Karen seconded, the “market will follow the path of greatest pain for everyone”.

    I’m long gold and oil, and short the United States of America. At this point, what’s good for GM is most assuredly bad for America.

  33. Mannwich says:

    @wunsacon: I don’t entirely disagree but they’re not bailing out any of those people with any of their actions. They’re saving themselves and their cronies. Someday Americans might actually wake up to this fact in enough numbers to do something about it. That could be the story of ’09, or maybe it won’t and this madness will continue…..

  34. Mannwich says:

    I’m done for the day/year. Off to the gym for some “sweatin’ to the oldies”……

    I’m long good health. Good riddance ’08……..Happy New Year to all!

  35. DL says:

    wunsacon @ 3:06

    They should just suspend the payroll tax for six months.

    The hell with everyone else.

  36. KJ Foehr says:


    USO hit a low on the 26th. Israel began air attacks on Hamas on Saturday the 27th. USO opened higher on Monday the 29th and the rally continues through today as the missiles continue to fly in the Middle-East. I could be wrong, but this move doesn’t appear to have anything to do with the fundamentals for oil to me.

    Deflationary forces have not been reversed yet, IMO.

  37. david says:

    I personally am enjoying my 0% for 6 years H2. I can afford to pay cash…but why the hell would I?

  38. mlomker says:

    @AT, I always enjoy your posts and I agree with you. This triangle pattern hasn’t violated my levels so my target remains at 948 unless it does. Regardless of how far it goes, though, it’s going to make for a nice short trade.

  39. Texican says:

    Dear Mr. Paulson:

    Why in the F should I pay my F’ing taxes? I hope they string your @$$ up you thief.

    Warm personal regards,

  40. KJ Foehr says:

    @The Curmudgeon from last week: You probably have lost interest in this debate by now, but I felt it was a very good post and deserved a response, even if it’s belated. Hopefully I have made a few decent points in response to your good ones.

    “KJ Foehr:
    “They can argue that the failure is not the fault of the philosophy because we have never had a perfectly free-market complete with gold standard and no central bank.”

    The point I’m making here is that the source of roughly a decade (perhaps two) of illusory economic growth that was unsupportable by fundamentals was the money supply tinkerings of a federal reserve system run by a fool. He claimed to believe two contradictory impulses at once–1) that free markets are the best of economic regulators, and 2) that money supply manipulations by the government can get a “free” market to do its bidding. One or the other must be correct.”

    Yes, I see this dichotomy, and agree that 2 is antithetical with 1 in its purest form. But a couple points of defense / explanation, 1. He is not really a fool. 2. The only thing he can control is money and the cost of it; that is his charge. 3. He is not free to remake the system into the libertarian / Austrian school system that you might prefer. I.e., he has no choice but to manipulate the money supply in an attempt to influence the economy, even though in his philosophical heart he may wish to be on a gold standard or not to have a Federal Reserve system at all.

    “Which is the pre-eminent power–the vast forces driving markets, whether considered “free” or unfree, or the government? In my assessment, the government is powerless in the face of vast economic forces such as culture, demography and international wage arbitrage. For example, no matter what Japan’s government does, no matter how free or unfree is her economy, economic growth will not sustainably return until she arrests her population decline, and it’s not clear what measures she could undertake to accomplish that end.”

    I disagree, and I offer the following as evidence of how governments can have a profound effect on their economies: 1. The Soviet Union, 2. China from ’49 to ’79 compared with ’80 to the present, 3. Zimbabwe. The forces you mentioned are vast and powerful, but government, establishing the “rules of the game” can have a powerful effect also. Japan is a difficult case because of its limited land, but it could begin to encourage immigration and increase growth that way (which I believe was a significant contributing factor to our growth in recent years, now probably ended due to the decrease in available jobs here). Japan’s population density is already relatively high, but I suspect an equally cogent reason they don’t do it is racism and xenophobia.

    “A similiar situation obtains regarding the American wage earner relative to his contemporary in one of our most important trading partners–China. American wages must decline and Chinese wages must increase until there is a relative parity between the two–if we are to continue as tightly-interlinked trading partners. Nothing either government does or can do (except imposing harsh and harshly-enforced tariffs) can change the compulsion for wage arbitrage. Our half-cocked way around the deflation that would have otherwise prevailed due to the wage arbitrage in the early 00’s was to inflate everything, including houses, of course. This presented the illusion of demand, fueling an inflationary spiral in the housing market. American workers did not take a cut in nominal pay, as they should have. Their pay just got less valuable through inflation. It was a ruse by the fed that ultimately backfired.”

    You seem to blame the fed for everything. I don’t think this was an intentional plan. I see it as simply an extension of free-market thinking into free-trade and globalization, allowing US businesses to exploit cheap labor around the world. We have seen a long succession of this over the years in many poor countries. China is just the most recent, and perhaps the most influential because of its very large labor pool and resulting very low wages, and because of the strong work-ethic of its people.

    The housing and credit bubble, IMO, was NOT a direct consequence of fighting deflation by Greenspan, but more so a consequence of the wild west, open season mentality on Wall Street and in this administration that led to rampant greed / leverage / fraud. They were all gettin’ while the gettin’ was good. The word was out; this was their moment; this was our new experiment in laissez faire, and they all knew it wouldn’t last forever, thus the haste to grab all they could as quickly as possible. See Barry’s recent post for evidence of how this was done, http://www.ritholtz.com/blog/2008/12/if-you-were-dead-they-would-still-give-you-a-loan/

    End of part 1. I think it’s too long to post in one piece, so I’ll post part 2 in another thread.

  41. wunsacon says:

    Maybe we should stop referring these actions as “bailouts” (let alone “rescues”). Unlike Chrysler in the 1980′s, these businesses don’t plan to do anything differently going forward. Since they’re marching backwards and we didn’t force them to change direction, we expect them to fail again — just like those borrowers defaulting a second time on their modified mortgages.

    “Moral hazard” doesn’t “feel right” either to describe these, um, “payouts”. If we try to reuse the insurance/house-fire analogy, this situation is like the insurance company compensating an arsonist. (The businesses were doing the wrong things — like leaving the gas on without a pilot light — for years.) The “moral hazard” — risk of what happens in the future — isn’t nearly as striking as the egregiousness of using other customers’ premiums to compensate the arsonist. And the arsonist had stopped paying premiums years ago, too, since the arsonist was losing money for years and thus not paying any taxes.

  42. wunsacon says:

    Mannwich, DL, I agree with you…I find this maddening.

  43. leftback says:

    @ KJ:

    I was mainly enjoying the fact that I was making money at the expense of some hedge fund tool who was short.
    You may be right, oil may go lower. But remember that the $ is a part of the fundies for crude.

    As I have said before, deflation is fine for me. It’s the inflation created by the bailout of irresponsible fools that is going to hurt me, and my strategy is therefore to protect myself from the results of these interventions.

  44. Steve Barry says:

    Watch these last 20 minutes…I have a funny feeling the wheels will come off the happy train.

  45. Steve Barry says:

    Do the fundamentals warrant 10 day put call being at 3 year lows?

  46. KJ Foehr says:

    Looks like some last minute profit taking, or does it signal the rally party is over and 1-2-09 will see resumed selling?


    What’s your take on the VIX below 40 for the first time since 10-2? Meaningful change or just holiday low volume trading?

  47. leftback says:

    Farewell, 2008, and thanks for the volatility. Buy and hold is dead.

  48. Steve Barry says:


    Good question…as I have been commenting, I think the put calls are better at timing the market…it shows what people are doing with their money…better than sentiment polls, which could be bluster….VIX seems like a blunt instrument to me and too closely watched. Being short as I am, the lower VIX makes me feel better anyway.

  49. Steve Barry says:

    My last prediction of the year was almost as good as my first…QQQQ tanked into the close and right into afterhours.

  50. KJ Foehr:

    The essence of my argument regarding the credit crash is thus: But for mismanagement of the money/credit by the fed–an entity that owns a monopoly on such things by dint of its monopoly on the dollar printing presses–there would have been no dot com bubble and crash, no LTCM bail-out, no housing market bubble and crash, etc.

    All that followed, regulatory and otherwise, is a result of this central fact–there was too much money/credit. Combine the imposition of an inflationary monetary scheme with the anti-regulatory zeal of laissez faire economists, and you get what we just experienced. The proper regulation to have prevented this would have been regulating the money/credit supply such that money retained its value as a medium of exchange and store of value. To do so would have meant facing up to some economic pain, which is why we refused. The pain comes anyway, so here we are.

    I don’t disagree that governments matter. It is the job of a government to set up an infrastructure in which economic transactions can take place. It is not the job of the government, nor within its capabilities, to set the prices at which they should occur (i.e., in the manner attempted by the Fed for money in the US, the Kremlin for everything in the old Soviet Union). In the long run, governments are powerless to set prices different than what the market demands. Set prices too high and the treasury is soon depleted. Set them too low, and the currency is soon worthless. Prices are set by a variety of forces beyond state control. That was my point. Governments that try to control prices, either through money supply mischief or through fiat, will always ultimately fail. Their job is to provide a reliable medium of exchange.

    I ask you this, though, in comparison to the old Soviet Union against whom we struggled for four decades for world hegemony: Who won? Which economic ideology proved supreme? Before you answer, consider that the successor Russian state with its vast quasi-private/quasi-government oligopolies is now roughly equivalent to America under TARP, and its coming follow-ons. If you have any question about that, just look at the example of GM in this post. Look at prohibitions against shorting. Look at Fannie and Freddie and $500b to juice the residential mortgage market.

    But that’s all’s I got for 2008…time to drink some wine and enjoy life for awhile. I’ll look for you again on the other side…

  51. AGG says:

    Moral hazard?
    You’ve got to be kidding me. GM HAS to move da inventory! Get it?
    How about some perspective here? What are these panties in a bunch about when hedge funds and the government big wigs have stolen and continue to steal billions? Is this about the poor bastards getting cars that will be reposessed?
    That bothers you?
    Your conscience needs an overhaul.
    Poor cheats are several layers of concern below wars, stock market manipulation and wall street bailouts to me. How about you?

  52. KJ Foehr says:


    Is that a real time number you use, or is it a daily print at CBOE? I never used it much; I assumed it was closely watched too and closely correlated with the VIX, but that was just my guess.

    I am short too and the falling VIX worries me rather than giving me confidence, but you probably have more experience with these things than me.

  53. AGG says:

    (The subject is wall street so it is on topic)
    Happy New Year!

  54. AGG says:

    To those who like to look at strange coincidences.
    Steve Barry, this means you.
    The intra-day chart for the Dow looks like a mini version of the Dow from 1996 until 2008. And note the last part. I don’t think there will be a rebound in 2009. The manipulations in 2008 have kept the market much higher than it should be. So look for 3,500 to 4,000 before the 1930 type rebound. That may not happen until 2010.

  55. AGG,

    that’s a good art. Pam Martens is an intelligent person, her stuff is cogent, and reads well, thereby.

    Hope ’009 finds us, all, Well & Wise, Hearty & Hale..

  56. jonpublic says:

    I would like to point out that they are doing what the government wants. Loaning the money out. Getting financing going. Wasn’t that the whole point of the bailout?

    Has any of the other financial firms said what they are doing with their share?

  57. Mannwich says:

    @jonpublic: Good point but if the people/entities they’re loaning the money to aren’t able to pay it back (hence, their lousy FICO score), what’s the point? That’s the whole issue with this – the people who qualify for credit don’t want it and the people who haven’t been able to get credit as of late, probably shouldn’t be getting it based on their inability to pay it back. That’s partly what got us into this mess in the first place, is it not?

  58. Mannwich says:

    Like I said yesterday, the Repo Man is a happy man these days. Wonder if it’s time to start a Repo franchise?

  59. Jeff,

    you’d be bettter off buying an existing ‘Repo’ outfit, getting through the ‘vetting’ process–pointed at a ‘new’ firm–of your customers, would be a lengthy ordeal, all by itself..

    but, remember: Kevlar can be fashioned into snappy vests, but it’s hard to see through..

  60. donna says:

    My mortgage is with GMAC. I feel like calling and demanding a lower rate, or else I refi with someone else. I gots lots of equity still, too. ;^)

  61. ZackAttack says:

    Wow, and now we’re going to bailout their suppliers as well:


    I guess it’s a rhetorical question to ask about the exit strategy for all this.

  62. jonpublic says:


    My friends who bought cars recently all were jacked on interest rates despite good credit. I’m sure they have tougher restrictions than the mortgage companies.