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GM Seeks Subprime Auto Buyers

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On: Wed, May 19, 2010 at 9:39AM | By: Sherry Christiansen

GM Seeks Subprime Auto Buyers

Recent Car news from Detroit indicates that General Motors is trying to secure a stake in the subprime auto lending market that comprises as much as 16% of today’s car buyers. GM executive Mark Reuss, under pressure to sell more cars and boost GM's value, stated that a shortage of subprime lending is holding back sales in the U.S.

Being highly motivated to increase sales in order to improve GM’s appeal to the stock buyers may not be enough to put GM back in the driver’s seat so to say, when it comes to auto lending decisions. GM sold its financial arm before filing for bankruptcy, to a company named Ally Financial (formally the notorious GMAC lending institution).  Although the subprime car buying market would be a very lucrative endeavor for GM, Ally has made it clear that they have little interest in lending to high risk borrowers.  Ally is owned in part and financially backed by the federal government.

Ally became very involved in subprime lending during the mortgage boom which nearly bankrupted the company when the housing market collapsed, the federal government then spent over $16 billion bailing out the lender, which has left the taxpayers with a 56% interest in the former GMAC company. Thus the hesitance of Ally to jump back into lending to high risk borrowers.

Mark Reuss, president of GM North America, told reporters that GM would like to have more control over who is approved for auto credit. He mentioned that Honda’s subprime buyers are currently 20% of new car sales. Reuss also stated; "it would sure help my sales, the company's sales in North America, if we were able to get access."

No one knows for sure what the future will bring as far as the possibility of GM getting back into the lending business. Ally Financial and General Motors may be able to come to terms regarding offering more subprime auto loans, but for now the jury is still out. One thing is for sure, Ally would have nothing to gain by selling to General Motors. In the first quarter of this year alone, Ally made over $800 million in pretax profit, up 28% from a year earlier.

Ally spokesperson Gina Proia refused to comment on how many subprime loans are currently being offered, or whether or not a deal is being considered to offer more subprime loans in the future. However, she did say that as the economy has started to recover, Ally has been open to offering auto financing to more customers. At the end of the day, any decision will most likely be influenced by the Treasury Department, which assigned Ally as the preferred lender for GM.


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