Automakers Getting Back Into the Sub-prime Loan Business?

by Benjamin Jones on April 13, 2009


At the opening breakfast of the New York International Auto Show, I was struck by one thing: GM is getting back into the sub-prime loan business. This one tidbit was mixed in with a few hours of talking, and I don’t even remember who mentioned it anymore.

However, it clearly stuck in my mind. The speaker not only mentioned getting back into the sub-prime loan business but also noted that it would be a good thing for consumer confidence. This is why I got hung up on the whole situation.

Sub-prime loans are very important to the auto industry. Financing direct from the automakers not only helps put people in cars, but it helps the automakers keep both the sales and the financing all under one umbrella, which increases profits for the company.

Right now, global auto sales are dipping to long-time lows. The recession has not only hurt the public’s ability to afford cars but freezing credit markets have made it even harder to get financing for those cars. Sub-prime loans help the automakers reach another market, a market that could not afford new cars without large loans.

But, does anyone really think this is a good idea? Sub-prime loans were at the heart of the beginning of this crisis. Right now, people are losing jobs and benefits; others are having salaries and hours cut back. Sub-prime loans were kept afloat for so long by good markets and good luck, but how will these risky loans do in a bad economy?

Now, I’m no expert at the economy, but if GM is expecting this announcement to add confidence to the marketplace among consumers, I can confidently say that I’m not so sure.

What do you think? Is this a good thing? Better yet, is it a good thing to advertise?

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{ 1 comment }

1 Carsforsale February 1, 2010 at 12:49 am

While the auto industry is not looking to good with its sales customers who are still wanting cars for sale will take out loans to ensure they get the car they want. Not everyone is in a bad way so this will benefit them.

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