GM wants more subprime buyers
Other companies are doing brisk business with subprime buyers. But not General Motors.
Subprime buyers received about 16% of all new vehicle loans in the fourth quarter of last year, The Associated Press reports. The auto industry depends on these people for its sales, and it needs the banks to give them loans.
GM wants to sell to more subprime buyers as it revs up for a new public stock offering. But its main lender, Ally Financial, doesn't like the risk of loaning money to people with poor credit. So GM is stuck.
Rival Honda Motor (HMC) counts on subprime buyers for 20% of its business, according to the AP. But because Ally (formerly known as GMAC) is being so conservative, GM only gets 1% of its business from that category.
So what can GM do? It's pretty clear that the company needs to start its own financing operation, and then it can be as loose with the purse strings as it wants.
But that costs a lot of upfront money, and it brings on a new level of risk for a company that's just getting its act together. GM reported its first quarterly profit in three years Monday. Post continues after video:
GMAC has been busy fixing itself, which included changing its name to Ally. Now, it writes about a third of all GM car loans, the AP reports.
GM could buy Ally outright or start its own financing. But it needs to do something, or else it will keep losing subprime business to its competitors.
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