Under fire, GM may put customers under water

Ryan Lovelace Contributor
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Amid concerns about home lenders issuing mortgages to low-income Americans who may not be able to make monthly payments over long periods of time, General Motors increased its own subprime lending in 2012 in order to jump-start American auto sales.

GM’s sales to subprime customers totaled 8.2 percent of all sales in the first quarter of 2012, above the industry average of 6 percent, said GM spokesman Jim Cain. He praised GM Financial, which Cain said exists to service subprime loans, as a success story.

Auto loans to subprime borrowers, generally described as those with a credit score below 660, rose to comprise 93% of the total loans provided in the first quarter of 2012 by GM Financial, according to Investor’s Business Daily.

Such lending practices may come as unwelcome news to President Obama, who has both touted his role in GM’s success and criticized subprime lending as a cause of America’s  financial crisis.

“[O]ne of the biggest problems about the collapse of Lehman [Brothers] and the subsequent financial crisis and the whole subprime lending fiasco is that a lot of that stuff wasn’t necessarily illegal; it was just immoral or inappropriate or reckless,” Obama said at a White House press briefing in October 2011.

At the same time Obama denounced subprime lending as immoral and reckless, the government-backed GM ramped up its own similar lending practices.

From the fourth quarter of 2010 through the first quarter of 2012, GM Financial’s loans to customers with the worst credit, scores below 540, rose 79 percent.

Cain said GM’s use of subprime lending is similar to that of other automakers. He also insisted it’s less risky than subprime lending in the housing market.

“Just because someone is not prime credit does not mean they’re a bad customer,” Cain said. “Our goal is to sell as many vehicles as possible and GM Financial helps us do that by financing as many cars as possible.”

GM Financial reportedly provides just more than 8 percent of GM’s financing, but government-owned Ally Financial Inc., formerly GMAC Inc., provides many of the remaining loans.

Taxpayers are still owed $44.5 billion from bailouts to GM and GMAC, according to a special inspector general’s report released July 25.

The company would need to sell stock at $55 per share in order for taxpayers to recover their involuntary investment in GM. Such restitution looks unlikely, as GM’s stock hit a new 52-week low last week at $18.72 per share, but the worst may be yet to come.

Charlie Brown, president and CEO of CB3 Financial Group Inc., told The Daily Caller that GM’s stock could hit $16 per share before all is said and done.

Even if GM CEO Dan Akerson avoids further stock woes, he may have no intention of repaying GM’s debts. After cleaning house in Europe in recent weeks, Akerson prioritized spending $600 million on an advertising deal with British soccer club Manchester United.