President Obama has touted GM as a successful example of his administration's policies. Yet, GM's recovery is built, at least in part, on the increasing use of subprime loans. (Remember that GM counts a vehicle sold when it leaves the production line. However, all those GM vehicles are not good for the financial health of its dealers. Therefore, in order to move vehicles off those dealer lots, GM has lowered the FICO scores of those eligible to buy those cars.)
Now, in regard to those FICO scores, potential borrowers of car loans are rated on scores that range from 300 to 850. Anything under "660" is generally deemed subprime. So, now you can guess how GM is helping to move all that inventory off dealers' lots. GM Financial auto loans to customers with FICO scores below 660 rose from 87% of total loans in Q4 2010 to 93% in Q1 2012. And, believe it or not, the worse the FICO score, the bigger the increase. From Q4 2010 to Q1 2012, GM Financial loans to customers with the worst FICO scores (below 540) shot up 79% to more than $2.3 billion. The second worst category, 540-599, rose 28% from about $3.4 billion to $4.3 billion.
According to Investor's Daily News, by spring of 2010 GM's new management, led by North American executive Mark Reuss, wanted to move back into subprime car loans, fearing that GM couldn't compete without granting such loans to the very worst credit worthy customers.
GM still owes about $26.4 billion in direct aid to the federal government. The Treasury owns 26.5% of the automaker, or 500 million shares. The stock price would need to be $53 to recoup those taxpayer costs. GM shares closed Friday at $19.67.
Now, in regard to those FICO scores, potential borrowers of car loans are rated on scores that range from 300 to 850. Anything under "660" is generally deemed subprime. So, now you can guess how GM is helping to move all that inventory off dealers' lots. GM Financial auto loans to customers with FICO scores below 660 rose from 87% of total loans in Q4 2010 to 93% in Q1 2012. And, believe it or not, the worse the FICO score, the bigger the increase. From Q4 2010 to Q1 2012, GM Financial loans to customers with the worst FICO scores (below 540) shot up 79% to more than $2.3 billion. The second worst category, 540-599, rose 28% from about $3.4 billion to $4.3 billion.
According to Investor's Daily News, by spring of 2010 GM's new management, led by North American executive Mark Reuss, wanted to move back into subprime car loans, fearing that GM couldn't compete without granting such loans to the very worst credit worthy customers.
GM still owes about $26.4 billion in direct aid to the federal government. The Treasury owns 26.5% of the automaker, or 500 million shares. The stock price would need to be $53 to recoup those taxpayer costs. GM shares closed Friday at $19.67.
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