Ironic Headline of the Day (Hint: It's About GMAC)

Today's Ironic Headline of the day comes via the New York Times and their humorous and insightful take on GMAC. Granted this is the first 'headline of the day' post ever written for WC Power Tech Fund Investment Blog but reading the NYT article (Link) the irony was too pronounced to ignore.

Here's the New York Times Headline: "With Needed Cash, GMAC Will Ease Lending Rules"

Seriously?? GMAC, whose automobile financing business has been in utterly dire straits as the credit crisis unfolded in the 2nd half of 2008 in step with domestic auto maker General Motors' (GM) own struggles on its way to the brink of bankruptcy, now starts back on the same path? Let's hope these firms learned a few lessons along the way.

It was the ease of lending restrictions that got infamous mortgage houses Fannie Mae (FNM) and Freddie Mac (FRE) into such a mess in the first place. Armed with $5Billion of Government Bailout money, the auto lending business can get back into full swing, or so thinks GMAC. According to the New York Times, the company is lowering its credit score from 700 to 621 for Americans to qualify for financing in order to stimulate business and expand the current potential customer base.

Credit scores of 620 or below are considered by the credit bureau to be "higher risk transactions," so at the very least GMAC is steering clear of those for the time being. It has been a tumultuous few days for the financing company, which is jointly owned by GM and private Cerberus Capital Management, its last second win or approval to become a bank opened the possibility for bailout funds in order to keep the company afloat. The Federal Reserve gave tentative approval for GMAC to become a bank holding company and thus allowed it to tap into a portion of the $700Billion bailout passed by US Lawmakers those months ago.

Clearly the infusion of cash gives GMAC invaluable time and monetary room in which to conduct and grow a broken business, but for investor's sake, the company had better not be on a path of 'Here we go again'.

Disclosure: Author holds no position in above mentioned companies.

Comments

[User 283977:]

GMAC 's lending rules were so high that no one was qualified. Just as well siince they had no money.

Now they are bringing the rules back down. They are keeping the qualification line to over 620. That is prudent. Of course there is a lot more involved than a persons credit score.

Here are some current qualifications for Toyota that I took off the web…

1. Loan to value.
2. Term of loan.
3. Age of vehicle.
4. Miles on vehicle.
5. Down payment.
6. Time at job.
7. Time at residence.
8. Monthly income before taxes.
9. Credit score/profile.
10. Total debt to income ratio.

Qualifying values:

1. 85% to 130%.
2. 36-72 months.
3. No older then 8-years.
4. No more then 60,000.
5. No less then $1,000.00.
6. At least 2-years.
7. At least 2-years.
8. No less then $2,000.00.
9. 540 and up with at least 4 lines of credit with 1 being a instalment loan paid 12 times for at least $150.00 a month.
10. Less then 45% including new car payment.

If you have a good credit score, you get a better rate because the risk is lower. Clearly, Toyota is more lax with respect to the credit score requirement.

2008 Dec 30 06:06 PM

[Paul Price:]

A CNBC announcer said today that with the new cash infusion GMAC can start giving out "zero % 5-year loans" to entice buyers back into buying GM vehicles.

With GMAC ostensibly paying 8% interest on this TARP money who's subsidizing these 0% loans? GM can't afford to and GMAC can't cover costs or make a profit.

Buying a GM vehicle with no money down and no interest costs? Don't worry, your friends the taxpayers, are thrilled to be helping out.

[cue laugh track]

2008 Dec 30 08:34 PM

[Quickdraw:]

"If you keep on doing the same things you've always done ... you'll keep on getting what you've always gotten."

For all of our sakes, and for the livelihood of our grandchildren, let's hope this saying doesn't re-live itself regarding GM's bailout and our money. All Americans have been forced by our government to pay for a monolithic business failure. I am skeptical of any positive learning experience,,given zero accountability for our loot ( and for the dismal performances by everyone associated with this taxpayer robbery ).

2008 Dec 30 11:52 PM

[31October:]

The Treasury & Congress now admit that they cannot accurately track the TARP funds.

They allowed the conversion of companies, including GMAC, into bank holding companies whether or not the company met requirements.

They allowed guilty financial CEOs to retire with massive golden parachutes, then allowed the company to receive funds.

The US government is frothing at the mouth to give away nonexistent money. There is no good that comes from giving away other people's nonexistent money, except to those who least deserve to receive other people's nonexistent money.

Instead of getting a lock on tracking the funds, Treasury is awarding more funds to a badly-run company, so that it may loan [our] money to people who are less likely to pay it back on time.

Brilliant. This will fix everything.

Jan 01 03:47 PM