GM wants more subprime buyers

Other companies are doing brisk business with subprime buyers. But not General Motors.

By Kim Peterson May 17, 2010 12:38PM
Car buyers © Image100/JupiterimagesPeople with bad credit still need to buy cars. And General Motors wants to sell to them -- if only its lender would chill out a little.

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:
The mortgage crisis is what got GM in its current predicament. The company sold a majority stake in GMAC, which then jumped into subprime mortgages. We all know what happened to that business, and the federal government had to bail out GMAC to the tune of $16 billion.

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.


Tags: GM
23Comments
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

113
113 rated 1
268
268 rated 2
422
422 rated 3
632
632 rated 4
512
512 rated 5
518
518 rated 6
682
682 rated 7
523
523 rated 8
343
343 rated 9
124
124 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
UPLULTRA PETROLEUM Corp10
TAT&T Inc9
COPCONOCOPHILLIPS9
DVNDEVON ENERGY CORPORATION9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.