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GMAC: 0% Financing for Subprime FICO Scores

Posted By Barry Ritholtz On December 31, 2008 @ 12:55 pm In Bailouts,Consumer Spending,Credit,Economy,Taxes and Policy | Comments Disabled

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 [1] 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.”

Astonishing.

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.


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[1] Portales Partners: http://portalespartners.com/

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