GM and Chrysler: Follow the Money

[CSpec]

Follow the money
Merging the two sickly car firms makes little sense—except for one thing

OBJECTIONABLE, but necessary. The description by Hank Paulson, America’s treasury secretary, of the federal rescue package for America’s banks, is a mantra that may soon be repeated in boardrooms across the land as recession-hit firms survey their dwindling options for survival. Few areas of the economy have been battered harder or for longer than the car industry, especially Detroit’s Big Three. So the news which surfaced at the end of last week that General Motors (GM) and Cerberus Capital Management, the private-equity outfit that was paid $700m by Daimler to take Chrysler off its hands just 17 months ago, had been talking about a possible merger between the biggest and the smallest of the Big Three was a surprise, but hardly shocking.

GM and Chrysler have been on the critical list for months, as has Ford, which also recently had some short-lived preliminary discussions about a tie-up initiated by GM, its bigger (but sicklier) rival. All three firms were in the midst of far-reaching cost-cutting and restructuring plans when they were hit by surging oil prices and tightening credit. This hurt the carmakers in three ways. First came a catastrophic drop in demand for the gas-guzzling pickups and sport-utility vehicles that have accounted for most of Detroit’s profits in recent years. Then came a collapse in earnings from leasing, as the residual values of fuel-thirsty vehicles plummeted. This was followed by the drying up of credit to fund new-car purchases. The carmakers’ finance arms, usually good earners in bad times, have more or less shut up shop.

That Cerberus should be desperately seeking an exit from its ill-judged foray into the car business is understandable. The deal it has proposed to GM is said to involve swapping Chrysler for the 49% of GMAC (GM’s lending arm) that Cerberus does not already own. Cerberus no doubt calculates that GMAC will be eligible for some of the government’s bank-bail-out money and that its fortunes will eventually improve—whereas it probably sees no future of any kind for an independent Chrysler. It is rather harder to see what the attraction of absorbing Chrysler might be for GM ("merger" is a cruel euphemism).

GM already has too much of all the things Chrysler has to offer. It certainly does not need more brands, for example. With nearly a dozen of its own, GM already has too many for its shrinking market share. Although Cerberus might claim that Jeep still has resonance, the Chrysler and Dodge brands are damaged goods, worthless outside America. Nor does GM need more truck factories, when it is cutting its own capacity as fast as it can.

To make matters worse, notes Jim Hall, an industry consultant who used to work for GM, most of Chrysler’s 3,500-strong dealer network would, under American law, have to be bought out at a total cost of well over $1 billion. And Chrysler does not have any compelling new models in the pipeline that might make it seem a more attractive proposition in the future. Having just launched (with almost hilariously bad timing) the new Dodge Ram pickup, Chrysler will have nothing fresh to sell until the small, Nissan-made Dodge Hornet arrives in 2010.

Meanwhile, Chrysler has announced that it is working on three electric vehicles, two of which will use similar range-extending technology to GM’s keenly awaited plug-in hybrid, the Chevrolet Volt. But GM is a lot further down that particular road and Chrysler admits it only has the resources to apply the new powertrain to existing models. Cynics suggest that the main purpose of Chrysler’s electric-vehicle programme is to allow it to snag its share of the $25 billion loan package agreed on by Congress last month to speed up the development of fuel-efficient cars.

A further consideration for GM is whether it really has the stomach for the opprobrium that is sure to come its way. Closing down much of Chrysler would enrage government, the unions, the dealers and the automotive-parts suppliers, all of whom GM depends upon. David Cole of the Centre for Automotive Research, an industry body, thinks it might just be worth it if the terms of the deal were right. "The trick is making it through the current period," he says. "But you have already taken out a lot of capacity and that is going to help restore pricing power in the industry for the first time in more than 10 years." Maybe, but GM’s rivals would enjoy the same benefit while enjoying a free ride.

The real prize for GM might, however, be something much more tangible. In August Cerberus claimed that Chrysler still had $11 billion in cash from loans raised earlier. There is speculation that it might be willing to throw that in, and add some more, in exchange for a stake in the merged entity. GM, which is currently burning through more than $1 billion a month, had access to $21 billion in cash and $5 billion in credit at the end of June. Brian Johnson, an analyst at Barclays Capital, thinks that the carmaker needs a further $10.3 billion to get it through to the end of next year, when cost savings and recovering demand should start to kick in. As one of GM’s rivals observed this week: "We think it’s cash that’s driving this pony."

[enzl]

Quote me on this:

The ONLY reason GM 'buys' Chrysler is because Cerberus has them by the throat via its 51% stake in GMAC.

Even if GM's management is as bad as I've said it is, they're simply not this stupid. It's gotta be a shakedown---GMAC is simply too enmeshed in the cash flow systems of GM to let things get completely out of hand

[The O.C.]

Quote me on this:

The ONLY reason GM 'buys' Chrysler is because Cerberus has them by the throat via its 51% stake in GMAC.

Even if GM's management is as bad as I've said it is, they're simply not this stupid. It's gotta be a shakedown---GMAC is simply too enmeshed in the cash flow systems of GM to let things get completely out of hand

There are many of us here at the dealership that wonder if GMAC's recent withdrawel (for all practical purposes) from auto financing or leasing is some sort of calculated effort on behalf of Cerebus to deal a major blow to GM and their dealerships?

[enzl]

Bingo.

You get the gold star.

Without getting into any specifics from personal knowledge, I'm sure your suspicion has some merit.

[CMG]

There are many of us here at the dealership that wonder if GMAC's recent withdrawel (for all practical purposes) from auto financing or leasing is some sort of calculated effort on behalf of Cerebus to deal a major blow to GM and their dealerships?

You'll have to extend that conspiracy theory, as Chrysler's lease program is gone too....

I bet FORD IS BEHIND THIS...

[evok]

There are many of us here at the dealership that wonder if GMAC's recent withdrawel (for all practical purposes) from auto financing or leasing is some sort of calculated effort on behalf of Cerebus to deal a major blow to GM and their dealerships?

Give me a break! Do you or enzl have any clue what is happening in the banking sector right now?

Do you know how GM and GMAC factored into the housing bubble?

GMAC helped created the current economic problems in the US and yet you two cry because GMAC now requires more responsible lending standards.

You two throw stones and yet you live in a glass house.

[traumadog]

Give me a break! Do you or enzl have any clue what is happening in the banking sector right now?

Do you know how GM and GMAC factored into the housing bubble?

GMAC helped created the current economic problems in the US and yet you two cry because GMAC now requires more responsible lending standards.

You two throw stones and yet you live in a glass house.

Or is Cerberus quietly putting the screws to GM by saying "you won't get financing for your cars unless you deal", covering it with a "legitimate business reason".

Who knows... GM gets Chrysler, uses ~$1 Billion or so to shutter those dealers (and maybe a few more). Sells fragments (maybe Dodge/Jeep/Hummer combined) to Renault, and rides out the recession with the remaining cash.

[evok]

Or is Cerberus quietly putting the screws to GM by saying "you won't get financing for your cars unless you deal", covering it with a "legitimate business reason".

Who knows... GM gets Chrysler, uses ~$1 Billion or so to shutter those dealers (and maybe a few more). Sells fragments (maybe Dodge/Jeep/Hummer combined) to Renault, and rides out the recession with the remaining cash.

The simple answer is NO. The banks do not trust each other.

LIBOR, other interest rate indexes Updated 10/15/2008

This week Month ago Year ago

Bond Buyer's 20 bond index 5.47 4.54 4.48

FNMA 30 yr Mtg Com del 60 days 6.44 5.32 6.32

1 Month LIBOR Rate 4.47 2.75 5.04

3 Month LIBOR Rate 4.64 2.88 5.21

6 Month LIBOR Rate 4.26 3.02 5.13

Call Money 3.25 3.75 6.50

1 Year LIBOR Rate 4.17 3.13 5.00

http://www.bankrate.com/brm/ratewatch/other-indices.asp

Let's call GM and GMAC what they really are - Sub-Prime borrowers. They are a risky bet. GMAC lives by commercial paper and that market has dried up for them as a means to raise cash. However they are doing the right thing by not lending to other Sub-prime borrowers right now, requiring people to put money down on a car loan, and stopping the upside-down loan practice. This is what is called a Credit Crunch.

Toyota and Honda on the other hand are Triple A rated companies.

Edited October 19, 2008 by evok

[CMG]

Looks like Evok has some sense to me....

:AH-HA_wink:

I'm tellin ya, thread after thread I just can't believe what some other posters believe...

[enzl]

Give me a break! Do you or enzl have any clue what is happening in the banking sector right now?

Do you know how GM and GMAC factored into the housing bubble?

GMAC helped created the current economic problems in the US and yet you two cry because GMAC now requires more responsible lending standards.

You two throw stones and yet you live in a glass house.

I'm not defending either GMAC or GM....but I can tell you that it seems awful suspect that GM has any interest in Chrysler. They are having enough trouble with the brands, dealers & lineup they've got---why compound it with more of the same?

There's simply no biz reason to do it. Chrysler's demise would put GM in a position to capture their lost sales---GM being blamed for Chrysler's demise might not play too well in the heartland--GM's last bastion of strength. Additionally, they'd be doing all of their competition a favor, since all players would have a shot at the Chryco customer base.

GMAC dropping floorplan-ed dealers, killing leasing and requiring 700 scores doesn't look like a slow squeeze to you?

[longtooth]

Looks like Evok has some sense to me....

:AH-HA_wink:

I'm tellin ya, thread after thread I just can't believe what some other posters believe...

Try seeking a life outside this realm. Read the legend of Cassandra.

[CMG]

Try seeking a life outside this realm. Read the legend of Cassandra.

No.

And no.

[evok]

GMAC dropping floorplan-ed dealers, killing leasing and requiring 700 scores doesn't look like a slow squeeze to you?

That makes no sense - really. Cerberus/GMAC is to blame for all of this i.e. Your loss of commission? GM and big segments of this industry has been living on borrowed time because of cheap credit. This is not some demented conspiracy by Cerberus to force GM's hand. That is absurd.

The US auto market has been inflated for years because of cheap leases, idiotic lending practices that are finally STOPPING. You know as well as I a good number of your customers should not be getting the loans and yet they got them. Well that has stopped as far as GMAC is concerned and likely would have stopped given GM's poor credit worthiness if they never sold the 51% of GMAC to improve the credit worthiness of the company.

Again I say there is a credit crunch going on, i.e. restricted credit availability. Given what is going on right now in the global economy, I believe it is the correct decision.

All those cheap leases you were peddling, are money loosers for GMAC including all those upside down loans. You have ranted on here for years about GM management and yet, you were the crack dealer doing GM's bidding.

It is over.

It is freaking sad, what has happened to the US economy, and the auto industry. But this economy will not be turned around in a year or two. I fear for what will happen to GM

Much like Custard, this is GM's last stand without a government bailout.

Personally I have yet to fully formulate an opinion of what GM plans to do because I have yet to see anything concrete. I can only speculate it is about cash and eliminating Chrysler.

Edited October 20, 2008 by evok

[enzl]

That makes no sense - really. Cerberus/GMAC is to blame for all of this i.e. Your loss of commission? GM and big segments of this industry has been living on borrowed time because of cheap credit. This is not some demented conspiracy by Cerberus to force GM's hand. That is absurd.

The US auto market has been inflated for years because of cheap leases, idiotic lending practices that are finally STOPPING. You know as well as I a good number of your customers should not be getting the loans and yet they got them. Well that has stopped as far as GMAC is concerned and likely would have stopped given GM's poor credit worthiness if they never sold the 51% of GMAC to improve the credit worthiness of the company.

Again I say there is a credit crunch going on, i.e. restricted credit availability. Given what is going on right now in the global economy, I believe it is the correct decision.

All those cheap leases you were peddling, are money loosers for GMAC including all those upside down loans. You have ranted on here for years about GM management and yet, you were the crack dealer doing GM's bidding.

It is over.

It is freaking sad, what has happened to the US economy, and the auto industry. But this economy will not be turned around in a year or two. I fear for what will happen to GM

Much like Custard, this is GM's last stand without a government bailout.

Personally I have yet to fully formulate an opinion of what GM plans to do because I have yet to see anything concrete. I can only speculate it is about cash and eliminating Chrysler.

Firstly, in your frantic effort to disprove my admittedly speculative POV, you go right to retail funding---which I could care less about, nor is it the crux of my argument---every lender has tightened standards---but GMAC has always been a willing co-conspiritor with GM regarding the financing of their product and rolling 100%+ financed vehicles--now that avenue has not only been cut off, its been nearly reversed as GM is paying dealers to use outside finance sources.

The real 'evidence' of GMAC's squeeze is moreso in the floorplan arena (where their rates have gone from merely expensive to downright uncompetitive) and the fact that GM is 'considering' acquiring Chrylser at all. If Cerberus hasn't given them an ultimatum, then what rational business argument is there for GM to touch that turkey?

GM doesn't want the blood on their hands in Michigan, they don't want to give their competition a free ride to higher sales when ChryCo gets killed and they certainly have proven (over and over) that they still have too many brands, dealers and employees---why would they want more now when things are so bleak?

Trust me, Cerberus has got GM by the short and curlies and will not let go...if GMAC goes Chap 11, kiss GM goodbye is my guess---that simply won;t work for GM and these money men have nothing invested but Other People's Money.

[evok]

Firstly, in your frantic effort to disprove my admittedly speculative POV, you go right to retail funding---which I could care less about, nor is it the crux of my argument---every lender has tightened standards---but GMAC has always been a willing co-conspiritor with GM regarding the financing of their product and rolling 100%+ financed vehicles--now that avenue has not only been cut off, its been nearly reversed as GM is paying dealers to use outside finance sources.

The real 'evidence' of GMAC's squeeze is moreso in the floorplan arena (where their rates have gone from merely expensive to downright uncompetitive) and the fact that GM is 'considering' acquiring Chrylser at all. If Cerberus hasn't given them an ultimatum, then what rational business argument is there for GM to touch that turkey?

GM doesn't want the blood on their hands in Michigan, they don't want to give their competition a free ride to higher sales when ChryCo gets killed and they certainly have proven (over and over) that they still have too many brands, dealers and employees---why would they want more now when things are so bleak?

Trust me, Cerberus has got GM by the short and curlies and will not let go...if GMAC goes Chap 11, kiss GM goodbye is my guess---that simply won;t work for GM and these money men have nothing invested but Other People's Money.

This really is not a heard concept to understand.

NY Times Article

GMAC, the former financing arm of General Motors, has “limited if any access to funding” for its mortgage and auto lending units, its chief executive, Al de Molina, has told employees.

GM still ownes 49% of GMAC and GMAC is caught in the middle of the housing crisis which they helped create resulting in this global credit crisis. More than likely, GMAC is on the cusp of bankruptcy. I fail to see why, you choose not to look at GMAC in the same light as Lehman, Bear Sterns, Washington Mutual, Indy Mac, Merrill Lynch, Wachovia . . .

What did GMAC do (even when owned fully by GM)? They lent money for cars and houses, bundled the loans and sold them off as structured investment vehicles. Today that is called toxic debt. We as US tax payers are now on the hook for this toxic debt when the Treasury gets around to buying it in an attempt to freeing up the capital markets.

GM is caught between a rock and a harder place without access to cash. Cerberus on the other hand was sold two white elephants for $21billion.

When GM announced its latest restructuring plan in June, they were banking on a 14 million market. The current market estimates are two million lower than that.

The only way I can characterize this situation is by writing it is UGLY. Without a drastic money infusion, GM might not see 101.

GMAC 6 months 2008 Performance

Edited October 20, 2008 by evok

[enzl]

This really is not a heard concept to understand.

NY Times Article

GMAC, the former financing arm of General Motors, has “limited if any access to funding” for its mortgage and auto lending units, its chief executive, Al de Molina, has told employees.

GM still ownes 49% of GMAC and GMAC is caught in the middle of the housing crisis which they helped create resulting in this global credit crisis. More than likely, GMAC is on the cusp of bankruptcy. I fail to see why, you choose not to look at GMAC in the same light as Lehman, Bear Sterns, Washington Mutual, Indy Mac, Merrill Lynch, Wachovia . . .

What did GMAC do (even when owned fully by GM)? They lent money for cars and houses, bundled the loans and sold them off as structured investment vehicles. Today that is called toxic debt. We as US tax payers are now on the hook for this toxic debt when the Treasury gets around to buying it in an attempt to freeing up the capital markets.

GM is caught between a rock and a harder place without access to cash. Cerberus on the other hand was sold two white elephants for $21billion.

When GM announced its latest restructuring plan in June, they were banking on a 14 million market. The current market estimates are two million lower than that.

The only way I can characterize this situation is by writing it is UGLY. Without a drastic money infusion, GM might not see 101.

GMAC 6 months 2008 Performance

Which furthers the argument I'm attempting to make:

Cerberus' desperate situation makes it more likely that they are putting the squeeze on GM!

They can get money---but not at the rate they once could--just because they are publicly pronouncing that they can't get it means nothing---it's PR.

Remember, unlike GM, Cerberus isn't a public company and has no real restrictions on what they say vs. reality. If Mr. Feinberg, Former Secretary of the Treasury Snow and 100's of the 'smartest guy in the room' types can't borrow money (albeit not at the rates they would like) than none of us can.

Note that they haven't mentioned Gov't bailout money---$ that GMAC is sure to get as a large mortgage holder--hell--they're talking about giving moneys on Auto loan's too---Cerberus wants out of Chrysler so bad that they are leveraging their catbird seat with GM to do it.

Noone's buying ChryCo otherwise. Nobody. Anything of use would be auctioned off at the Chap7 firesale--why buy now?

[evok]

Noone's buying ChryCo otherwise. Nobody. Anything of use would be auctioned off at the Chap7 firesale--why buy now?

And you might as well add GM and GMAC's assets being auctioned off in that same firesale.

For good or bad - GM and Cerberus are in this together. If one fails, so does the other.

Something else you seem to forget is, GM approached Daimler about this two years ago and if the recent reports are correct, GM approached Cerberus this time.

Edited October 20, 2008 by evok

[ZL-1]

this is GM's last stand without a government bailout.

This is what's it all about isnt' it? They know the $11bn won't last long when combining two money-gobbling black holes and they'll play the "relevance to the US economy" card in Washington.

[Toyota.vs.GM]

Firstly, in your frantic effort to disprove my admittedly speculative POV, you go right to retail funding---which I could care less about, nor is it the crux of my argument---every lender has tightened standards---but GMAC has always been a willing co-conspiritor with GM regarding the financing of their product and rolling 100%+ financed vehicles--now that avenue has not only been cut off, its been nearly reversed as GM is paying dealers to use outside finance sources.

The real 'evidence' of GMAC's squeeze is moreso in the floorplan arena (where their rates have gone from merely expensive to downright uncompetitive) and the fact that GM is 'considering' acquiring Chrylser at all. If Cerberus hasn't given them an ultimatum, then what rational business argument is there for GM to touch that turkey?

GM doesn't want the blood on their hands in Michigan, they don't want to give their competition a free ride to higher sales when ChryCo gets killed and they certainly have proven (over and over) that they still have too many brands, dealers and employees---why would they want more now when things are so bleak?

Trust me, Cerberus has got GM by the short and curlies and will not let go...if GMAC goes Chap 11, kiss GM goodbye is my guess---that simply won;t work for GM and these money men have nothing invested but Other People's Money.

In case you didn't know , Citigroup because of the credit crisis has cut GMAC's access to credit(as what is happening all over the world).

[The O.C.]

Give me a break! Do you or enzl have any clue what is happening in the banking sector right now?

Do you know how GM and GMAC factored into the housing bubble?

GMAC helped created the current economic problems in the US and yet you two cry because GMAC now requires more responsible lending standards.

You two throw stones and yet you live in a glass house.

GMAC's challenges today are very real, make no mistake. And you can argue they are doing what they have to do considering the situation they are in.

However, I wouldn't say this "about-face" in lending practices is nearly as simple to describe as "requiring more resonsible lending standards."

We aren't talking about foolishness like financing a 450-fica score customer with a 160% advance and no down......we are talking about customers with decent credit (say 600's) or challenged credit (high-500's) not even getting a shot anymore.

GMAC's requirement of at least a 700-fica score is set-in-stone from the standpoint that if you are a 693-fica score, let's say...(my customer from Saturday night)....GMAC won't negotiate...won't look at the deal....no matter how much money the customer has down....no matter how "good" their 693 credit is (i.e....paid car loans, no deliquencies, etc.)

To follow that up, GMAC, IF they finance that 700-fica customer, won't finance ANY amount over vehicle invoice. That includes taxes and fees. Even if you had a GM product that you could sell for window sticker (Escalade Hybrid, CTS-V)....you won't be financing it thru GMAC (unless the customer comes up with cash down to cover the cost of taxes, fees, and profit from window sticker to invoice. (This is not even to mention if you have a customer you are un-burying from their last vehicle.)

So, you are right....prolly what they have to do in today's times......but I'll tell you, it does smell damn fishy still...in any event....

[evok]

This is what's it all about isnt' it? They know the $11bn won't last long when combining two money-gobbling black holes and they'll play the "relevance to the US economy" card in Washington.

There is $25 billion that has been authorized by congress to lend to US auto operations that have plants more than 20 years old (The CAFE money). The Department of Energy needs to write the rules to see who is eligible for the funds. That will take time and let me estimate about a year. Strings will be attached to those loans such as the viability of the company. Is Chrysler viable? They have not invested in product over the past year. I was also told their manufacturing facilities (GA, powertrain) are not receiving the capital investment they need for the long term.

If this deal goes through, GM gets Chrysler's cash asap to hold them over until the DOE funds are released. Without Chrysler on the receiving end, GM could pickup a bigger share. It is possible, this time next year, GM could have $20 billion additional funds in the banks including what they received from Chrysler.

Also - if a deal goes through, with all the jobs at stake, GM can argue they are "Too Big to Fail" and get additional low cost funds from the government independent of the CAFE money.

It has been 3 months since GM released a financial report and right now we have no idea how much cash they have on hand. I suspect it may be a lot worse than we are lead to believe even factoring in the line of credit they tapped into.

GM could be left with about 6 months cash with all things being equal. All things are not equal right now.

[evok]

However, I wouldn't say this "about-face" in lending practices is nearly as simple to describe as "requiring more resonsible lending standards."

"requiring more resonsible lending standards" were call for during this credit crunch. This is why Paulson was on his hands and knees begging Pelosi to pass the $700 billion bailout bill.

People and companies thought it was their right to have not only credit but cheap credit if for buying a home with no money down or rolling three car loans into a new upside down 8-year note. I think we have seen where those "unreasonable" lending practices have gotten us.

[CARBIZ]

There's plenty of blame to go around, that's for sure. Look at what our grandparents got for their first home: 1-3 piece bathroom, no sod, no appliances, no driveway (you were lucky if the developer dumped a load of gravel on your front lawn), a carport if you were lucky - that's it. Now, look at what people 'demand' for their first time homes: central air, central vac, 3 or 4 bedrooms, 60 oz carpet, double car garage, casement windows....the list goes on and on. And all of that with nothing down and 40 years??? Clearly a recipe for disaster.

Living within our means is a phrase not in most people's vocabulary anymore.

[CMG]

Living within our means is a phrase not in most people's vocabulary anymore.

How could one sentence be MORE true..?

:AH-HA_wink:

[saturnd00d]

How could one sentence be MORE true..?

:AH-HA_wink:

Agreed

[01LightningGal]

"requiring more resonsible lending standards" were call for during this credit crunch. This is why Paulson was on his hands and knees begging Pelosi to pass the $700 billion bailout bill.

People and companies thought it was their right to have not only credit but cheap credit if for buying a home with no money down or rolling three car loans into a new upside down 8-year note. I think we have seen where those "unreasonable" lending practices have gotten us.

What was trying to be explained to you, was the fact that GMAC's new criteria is not just "responsible lending standards," but are impossible lending standards. In other words, they will find any way to turn you down, no matter how "makes sense," your loan is.

Do you honestly think that someone with a 600-700 FICO score is "sub-prime?" If so, then you have no clue, what-so-ever, about credit scores, sub-prime, underwriting standards, or anything else that goes into making a lending decision.

Would you be surprised to know that I have helped people buy homes (was a mortgage loan officer for 7 years, and got out in 2005), who have PERFECT credit, and low 600 credit scores?? Do you know that people who do not believe in credit cards, are punished by the FICO system?? Do you know that a person who has $100K worth of available CC credit, and has $20K of that in CC debt may have a 700+ score............... but the person who only has one credit card, because you almost have to these days................. and has, say, a $3000 limit, and owes $2000................ may have a low 600 score. This is with long credit histories on both, and no blemishes of any kind??? Did you know that your score can vary by more than 100 points between the three bureaus?? Did you know that appx 30% of mortgage companies do not report to the bureaus, because they are afraid that other lenders will see their loan (we can figure out the terms), and solicit their clients to refinance??? Did you know that appx 80% of all credit reports have errors on them............. many of them serious???

In other words............... I HATE when people make broad statements about something that they know nothing about. The majority of consumers in this country are between 600 and 700. Appx 30% are above 700, and maybe 1-2% are above 800 (I saw 2 in my 7 years).

Credit scores have NOTHING to do with how responsible you are with money, and everything to do with how lenders can charge you MORE money. This is by using an abstract number, that noone knows how it is tallied, based on flawed and incomplete information. If the FICO system had anything to do with your ability to repay, it would be based on accurate info, and have income and job information also.

Ok, I am done with my credit score rant of the day.

That said, I do believe that GM is pretty much being forced into this. Cerebus wants out of the auto biz, and wants the rest of GMAC. GM is desperate to survive, and since they refuse to make the difficult decisions of reducing brands, will beg, borrow, or steal from anyone, to survive.

[evok]

What was trying to be explained to you, was the fact that GMAC's new criteria is not just "responsible lending standards," but are impossible lending standards. In other words, they will find any way to turn you down, no matter how "makes sense," your loan is.

Do you honestly think that someone with a 600-700 FICO score is "sub-prime?" If so, then you have no clue, what-so-ever, about credit scores, sub-prime, underwriting standards, or anything else that goes into making a lending decision.

Would you be surprised to know that I have helped people buy homes (was a mortgage loan officer for 7 years, and got out in 2005), who have PERFECT credit, and low 600 credit scores?? Do you know that people who do not believe in credit cards, are punished by the FICO system?? Do you know that a person who has $100K worth of available CC credit, and has $20K of that in CC debt may have a 700+ score............... but the person who only has one credit card, because you almost have to these days................. and has, say, a $3000 limit, and owes $2000................ may have a low 600 score. This is with long credit histories on both, and no blemishes of any kind??? Did you know that your score can vary by more than 100 points between the three bureaus?? Did you know that appx 30% of mortgage companies do not report to the bureaus, because they are afraid that other lenders will see their loan (we can figure out the terms), and solicit their clients to refinance??? Did you know that appx 80% of all credit reports have errors on them............. many of them serious???

In other words............... I HATE when people make broad statements about something that they know nothing about. The majority of consumers in this country are between 600 and 700. Appx 30% are above 700, and maybe 1-2% are above 800 (I saw 2 in my 7 years).

Credit scores have NOTHING to do with how responsible you are with money, and everything to do with how lenders can charge you MORE money. This is by using an abstract number, that noone knows how it is tallied, based on flawed and incomplete information. If the FICO system had anything to do with your ability to repay, it would be based on accurate info, and have income and job information also.

Ok, I am done with my credit score rant of the day.

That said, I do believe that GM is pretty much being forced into this. Cerebus wants out of the auto biz, and wants the rest of GMAC. GM is desperate to survive, and since they refuse to make the difficult decisions of reducing brands, will beg, borrow, or steal from anyone, to survive.

You have said a lot and it only further illustrates, you do not grasp the economic situation at hand.

Finance 101: GMAC does not have the cash.

Lending standards across the board have been irresponsible, hence the recent melt down of the global finance business and subsequent action by the government to take over banks and money injections by the central banks. The liquidity in the system is lock-up. If GMAC had been more responsible in the past, maybe its credit rating would be different resulting in a better cash position and its lending practice less strict right now. However, what money GMAC does have, since FICO is still the generally accepted industry risk model, the company will lend to customers that have more or less excellent credit history above 700 depending on rating agency (app 50% of poplulation). Given the situation at GMAC, that is responsible.

And BTW - The housing market bubble collapse was initiated by defaults on sub-prime mortgages and the rest is history. Over the past month, this has been well documented.

Tight credit is an industry problem - USA Today article published this morning.

Finally - I just read in the WS Journal, even American Express is having problems with credit card debt. Late payments, and debt deemed uncollectible doubled in the past year. AmEx in the same article stated they will be restricting credit limits for those that are risky and carry a balance as well as change their charge card policy for new customers. They are not alone as Chase and Capital One are having similar problems and taking similar action.

Edited October 21, 2008 by evok

[CARBIZ]

01LightningGal's post made me thing of the insurance industry: they will advertise impossible to acheive rates, then find every nitpicky reason to charge the consumer MORE.

That seems to be more and more how business is done these days. Gouge and rip off.

The trouble with credit scores is that the onus is on the consumer to ensure they are accurate, not the other way around. Even with liens, for example, I've seen many credit bureaus with liens still on them for loans that were paid off years ago.

Responsible persons will check their credit rating frequently. It can be very enlightening - even scary!

[haypops]

Didn't Mitsubishi almost give up on their North American business because of bad loan policies.

I wonder what the relative harm to GM, etc. has been from falling resale value of leased cars vs. poor purchase lending procedures.

[FUTURE_OF_GM]

Would you be surprised to know that I have helped people buy homes (was a mortgage loan officer for 7 years, and got out in 2005), who have PERFECT credit, and low 600 credit scores?? Do you know that people who do not believe in credit cards, are punished by the FICO system?? Do you know that a person who has $100K worth of available CC credit, and has $20K of that in CC debt may have a 700+ score............... but the person who only has one credit card, because you almost have to these days................. and has, say, a $3000 limit, and owes $2000................ may have a low 600 score. This is with long credit histories on both, and no blemishes of any kind??? Did you know that your score can vary by more than 100 points between the three bureaus?? Did you know that appx 30% of mortgage companies do not report to the bureaus, because they are afraid that other lenders will see their loan (we can figure out the terms), and solicit their clients to refinance??? Did you know that appx 80% of all credit reports have errors on them............. many of them serious???

I found that out the hard way... Paid off all of my credit cards and my score WENT DOWN. Asked why and received this as the answer: "Because you have no debt, you are not showing a history of payment. Therefore, we don't know how reliable you are to repay debt."

Pure IMO.

[CARBIZ]

I found that out the hard way... Paid off all of my credit cards and my score WENT DOWN. Asked why and received this as the answer: "Because you have no debt, you are not showing a history of payment. Therefore, we don't know how reliable you are to repay debt."

Pure IMO.

That's what passes for logic on WallStreet these days. That is what all the graduates of economics classes are being taught. The banks will loan you enough money to hang yourself - and then when you do hang yourself, they get all pissy about it.