GM wants more subprime buyers; will lender agree? GM wants to lift sales with more subprime buyers but its main lender keeps purse strings tight
DETROIT (AP) — If your credit isn’t good,
The problem is, it can’t. At least not in big numbers. That’s why the automaker wants more control over its lending again.
GM’s top North American executive Mark Reuss, under pressure to quickly sell more cars and boost GM’s value as it gets ready to sell stock to the public, said a shortage of subprime lending is holding back sales in the U.S.
But the automaker’s main lender, Ally Financial Inc., has little appetite for risky loans, having spent the last few years cleaning up its own financial mess caused mainly by its failing mortgage lending business. Both companies are majority-owned by the U.S. government.
For decades, GM owned Ally, writing its own loans through the so-called captive finance arm. Nearly every automaker makes loans in such a fashion. But a cash-starved GM sold most of Ally — formerly known as GMAC — in 2006.
GM and Ally now have a loose partnership that gives Ally control over who gets a car loan. If GM returned to auto lending — either through buying Ally’s auto business or starting its own in-house lending unit — it could set lending standards itself. That could benefit the automaker by allowing it to extend loans to people with weaker credit and to more lease customers.
“There’s a real sense of urgency on GM’s part to maximize its sales” as it gets closer to the stock offering, said Kirk Ludtke, senior vice president of CRT Capital Group in Stamford, Conn.
Subprime buyers make up a significant portion of the car buying market. About 16 percent of all new-vehicle loans written in the fourth quarter of 2009 were to customers with below prime credit, according to credit agency Experian. That means they went to customers with credit scores below 620 on a 300-to-850-point scale.
Reuss, president of GM North America, would not say outright if the automaker was looking to set up its own financing operation. But he said last week that one need only to look at auto loan data to find plenty of good reasons for GM to have control of its own financing.
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