Federal government in car loan business

The government may be able to do for the car industry what it has tried to do for housing

By 247 wallst Nov 10, 2009 12:24PM

Buying a car © Creatas/PicturequestThe federal government is highly active in getting banks to reset loans for people by improving the terms of their monthly payments.


The Homeowner Affordability and Stability Plan has had mixed success, but it has helped keep tens of thousands of people in their homes.


The Administration’s entire home foreclosure program is a $75 billion multi-purpose plan designed to help as many as 9 million borrowers suffering from falling home prices and unaffordable monthly payments.


That's an expensive program to help what may be a modest number of people with their mortgages.

 

The government tried to make a related effort to help the auto industry. “Cash for clunkers” did not change people’s car payments. It did give them financial incentives to buy more fuel-efficient cars, and those incentives were large enough to bring down the total cost of owning a new vehicle considerably.

 

AutoNation (AN) chief executive Mike Jackson, who runs the largest publicly-traded car dealer chain in the country, said he does not expect to see improvement of any magnitude in U.S. vehicle sales until 2011.


This year, the American market will only support sales of about 10 million cars and light trucks. That level is so low it nearly put GM and Chrysler out of business. Jackson believes the industry faces at least one more hard year because of unemployment and the lack of credit.

 

“They simply don’t have the money to lend," he said, according to the Associated Press. "So, of course, they make the standards unreasonably tough and unreasonably difficult, because they just want to say no. They don’t want to say yes."


And, it is really that simple. Many people who could normally afford a car and still have a job cannot get a car because they cannot get a loan.

 

The federal government has the opportunity to help the car industry and the hundreds of businesses that supply it and the tens of thousands of people that they employ by doing just one simple thing: Guarantee the car payments of people who are credit worthy by most reasonable standards.


The guarantees can be made through the normal banking system or the lending arms of the car companies. The government would probably be taking a very modest risk if the car buyers are screened through the typical lending process.


A South Korean car company, Hyundai, allows people who lose their jobs or become disabled to turn their cars back to the dealer within a year of purchase.

 

The American government is not making an offer like Hyundai’s but if it wants to get the car business back in gear it is going to have to come up with some reasonable plan to help creditworthy buyers buy cars.

 

Top Stocks writer Douglas A. McIntyre is an editor at 24/7 Wall St.

 

Related stories:

 

The day's market rumors

 

Day trading

 

Biotech stocks

0Comments

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.

124
124 rated 1
282
282 rated 2
455
455 rated 3
624
624 rated 4
642
642 rated 5
665
665 rated 6
610
610 rated 7
460
460 rated 8
287
287 rated 9
167
167 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
TWXTIME WARNER Inc10
BBBYBED BATH & BEYOND INC10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
COPCONOCOPHILLIPS9
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.