GM Financed 50% of Car Purchases Last Year; Can Only Finance 6% Now

Jeebus. This gives you a sense of why GM’s in such dire straits:

GM‘s financing arm, GMAC, cannot effectively access the secondary markets today. With each passing day, it is less able to finance the sale of GM vehicles, either for dealers or for the public. One year ago, GMAC was able to provide either installment or lease financing for nearly half of GM retail sales. That number has fallen to 6% today. In addition, GMAC is no longer able to buy contracts for customers with a credit score under 700, which excludes roughly half the buying population. All of this has been especially toxic to GM sales in the past two months, with sales running about 40% behind year-ago levels. [my emphasis]

Just by way of comparison, Chrysler says that they give credit to 50% of Chrysler customers (though it doesn’t say whether it has been able to maintain those numbers), and Ford says it gives credit to 4 million consumers last year, though doesn’t say what percentage of sales its credit arm supports.

Imagine, though, that 100 customers walk in your door–and whereas last year, you would have been able to offer 50 of them credit, but can only offer 6 of them credit this year. That’s gonna cut into your business–dramatically.

Incidentally, Ford talks in much more abstract terms about how the credit crunch is affecting its business.

The present credit environment also has severely limited the ability of the automotive finance companies like Ford Motor Credit Company to access the public debt and securitization markets, and is significantly impairing our ability to support dealer and consumer financing needs. Banks and investors are exhibiting an aversion to risk and a willingness to invest in only the highest-quality financing instruments, and preferably in government instruments or government guaranteed debt. This risk aversion has expanded to a level where it is challenging to find financial counterparties to transact even simple interest rate and currency swaps, further contributing to a significant slowing of U.S. economic activity. These issues have further constrained the cash available from Ford’s normally profitable automotive finance company to support our automotive business.

50 replies
  1. Petrocelli says:

    Marcy !

    United Steelworkers Union Pres., Leo Gerard was on Rachel’s show last night, kicking *ss and taking names. He labeled this as a cash crunch problem and blamed Wall Street for the shortage of credit.

    He also has a new fan.

  2. JTMinIA says:

    Why did the car makers get into the business of providing loans in the first place? Was it to ensure sales, to make some extra money on the side, or for some other reason? (This is a serious question [for once]; I don’t know the answer and predict that someone here will. I can’t interpret the new data without this information.)

    • emptywheel says:

      Are you talking consumer loans or wholesale loans (loans to dealers)?

      bmaz would know more about the history of auto consumer loans, but I suspect it dates to the end of WWII, and is basically part of our entire country’s dependence on credit. By having the car companies give the credit themselves, they have more flexibility to tailor products to the way they want to move cars (for example, using leases to get people into different buying habits; though NO ONE is giving leases right now).

      As to the dealers, the credit is one of the foundations of the dealer/manufacturer relationship. If you think about it, some franchse relationships rely on corporate ownership of land (McDonalds is like this), others just have really strict franchise agreements, but the auto industry needed both volume (car stock is more expensive than, say, cookies) and real control.

      • bmaz says:

        A typical car dealership has several independent financial entities/brokers it will work with to finance customers. This has grown over time. Years ago, many more people got their own financing from their personal bank, credit union, etc.; but as cars got more expensive, and the process more complicated and onerous, dealership “finance specialists/officers” became more prevalent and now it is rare when financing is not done out of the dealership.

        I don’t know exactly when the manufacturers themselves became heavily involved in consumer finance. The company credit arms such as GMAC and FMC were always around as a way of flooring (financing) the dealerships as to inventory, parts, etc. and sometimes the land, buildings and facilities (service departments have a lot of very expensive hydraulic systems and lifts, front end and chassis machines etc.). But basically, it was a way of financing and controlling their dealers. The manufacturers kept them on a string this way and always had an eye on the financials this way.

        At some point, not sure when (my mother would have known this), the company credit arms like GMAC, FMC decided that there were so many people now financing vehicles that they should get in on that action. I first personally saw this in maybe 1974-5 or so, but it was probably going on before then and I just didn’t realize it. At first, GMAC only did this for grade A-1 customers, but slowly they came to offer it to all people basically same as a bank would.

        • readerOfTeaLeaves says:

          Kevin Phillips’ “American Theocracy“, p. 28: “Inside Ford and GM… the biggest profits are made not by the manufacturing segment but by the two financial arms: Ford Credit and General Motors Acceptance Corp (GMAC). Both are giants in teh accounts-receivable world. At Ford the nuts-and-bolts automotive sector made $850 million before taxes in 2004, while Ford Credit racked up record pretax profit of $5 billion.** Both companies’ credit subsidiaries, it mes be added, go beyond auto loans to services ranging from leases to mortgages and money-market instruments. the new bottom line, one could argue, is that manufacturing results have given way. Actual production of goods has become the showroom for a loan-origination business…”

          ** Phillips cites an AP article dated Jan 25, 2005, “Ford Sees Lower Profits in ‘05‘ as the source of these stats.

          And Petrocelli’s link is terrific, IMHO.
          Leo Gerard really does bring some very relevant topics into the public conversation, and the information he brings to the discussion are important for everyone — not simply auto workers.

        • emptywheel says:

          That Phillips stuff is a little dated, not least with the 51% sale of GMAC. But still gives an idea of the role of credit in profitability. Note that’s stateside market; the profitability equation is different in other countries.

        • PJEvans says:

          They won’t fuss if you finance through an outside lender, though.
          I went to my credit union for my car loan. Got the same rate as I would have from the dealer, but it was easier to make the payments, because the CU is part of an ATM network, as well as having an office upstairs from me.

        • bmaz says:

          No, they try to steer you to their own, because of the profit centers from the financing and add ons they con you in to, but a sale is a sale and they will not jeopardize that.

        • PJEvans says:

          It may have been different for me, because I was at a Toyota place (and putting 10% down besides the pre-approved loan).

    • plunger says:

      The total profit to the parent corporation can be viewed on a blended basis when financing is one of the components. Whereas the dealership has a certain amount of wiggle room in the pricing of the vehicle, they get a second bite of the apple on behalf of themselves and the finance company when they sit you down to discuss the financing options. During this process, they can upsell you on a multitude of service add-ons and other gimmicks, and make profits on every piece of closing the deal. If it’s factory-related financing, more revenue-per-vehicle flows to the corporation than would otherwise. The dealership also has in mind that they can ding you on the back end (financing) if they let you into the car for the “right price” on the front end.

  3. JohnLopresti says:

    I can vouch for the fact that folks still were going to their personal bank officer to finagle a car loan in 1963. I know of one such instance which caused a lot of soul searching by the borrower, as the bank was slow to warm to the idea of buying an upscale brand when a generic peoples car would suffice for getting the kids to soccer and fencing practice.

  4. plunger says:

    GM and Ford began life in very different ways and the differences still show.

    In 1908, the Flint carriage maker, William Durant founded General Motors. The numerous badges under the GM umbrella today are vestigial appendages of GM’s evolution. Durant bought small, independent car makers to build his corporation. He also lost control of GM on two occasions because he ran the company into massive amounts of debt and then suffered from market collapses. Sound familiar? GM has always been focused on short-term profits and has always lacked any sort of conscience. Flint is a shithole today because GM simply left for greener pastures when it was in the corporation’s best, short-term interests. GM was deeply implicated in the demise of the electric public transportation network that used to serve American cities. GM is the company that actually developed an electric car…and then sent them all to the compactor.

    Contrast that story to Henry Ford’s founding of the FoMoCo in 1903. Henry concentrated on building cars rather than building a corporation. Wall Street chastised him for voluntarily raising pay to $5/day and instituting the 8 hour, 5 day work week. Productivity soared and his workers could actually afford to purchase the product that they made. He never had much use for Wall Street anyhow. If not for a freak fire and the outbreak of WWI, his collaboration with Edison might have brought us electric motoring before 1920. The man was building bio-polymer body panels in the mid 1930’s and operating his plants with renewable power whenever possible.


    Don’t ignore this part – John Snow = Cerberus:

    One final note. Keep your eye on GM. Don’t focus on the outstretched hand; be mindful of what the other hand is doing. GMAC (which is roughly half owned by Cerberus, the three headed dog of Hades that owns Chrysler) has applied for “bank holding company” status. If that is approved then GM gets its hands in the TARP cookie jar. If GMAC gets bailed out, i predict that GM and Chrysler will happily file for bankruptcy. Whether they will even bother to restructure and still build cars is anyone’s guess, but i wouldn’t be surprised to see them both walk away from the industry and let others deal with the wreckage.

  5. ThingsComeUndone says:

    This is a great argument for why the rich should be taxed to help the middle class. Because the rich are now suffering as the economy goes down and it takes their stock prices down to.
    Do we really want to wait until unemployment gets to Great Depression levels like we did under Hoover before we do something?

  6. CasualObserver says:

    Has anyone out there looked at nationalization of GM/Chrysler? Wouldn’t this be a tool worth considering for reforming the industry?

  7. plunger says:

    Just saw an ad on CNBS for “GMAC BANK” – encouraging suckers to go to their web site to deposit their money there…”member FDIC”

    They did such a shitty job managing a finance company, the FDIC has awarded them “bank” status, and taxpayers are funding this startup?

  8. JTMinIA says:

    That dealers started offering loans to car-buyers in the mid-70s matches my memory. But, again, my question was why they did this. bmaz suggests (to me) that it was a way to make money on the side (where “on the side” means that it isn’t inherent to selling cars and/or parts and service for cars).

    The reason this matters to me is because it determines the way I interpret the drop from 50% to 6% in the main post. If providing loans was started as a side way to make money, then the relevant baseline for interpreting the drop from 50% to 6% is the drop is car-loans being made by other “banks” (such as USAA, which finances my cars but doesn’t build them). My guess is that other banks are also making only a fraction of the car loans that they used to make, so the drop in loans by GMAC isn’t surprising (or even a big deal, in my mind).

    On the other hand, if providing loans was more integral to the business of building cars, then the drop from 50% to 6% is more critical.

    Expressed differently, if this is “just” another sign of the credit crunch, then it isn’t a reason to give car companies federal money. Rather, it would be a reason to whip the Fed’s ass for screwing up the bailout so badly. Only if this is something inherent to building cars is this a reason to give the car companies federal money. After all, I don’t see any logic in solving the credit crunch by loaning federal money to such a specific kind of “bank.”

    • emptywheel says:

      You’re getting focused on the wrong part of the credit equation, if that’s your question.

      Credit IS inherent to “flooring” (the purchase by dealers of cars from the manufacturer). So while the reason THAT credit has dried up has to do with the credit crunch, so long as the manufacturers can’t give these loans, they’re out of business. And those loans come from the manufacturers for some very reasonable reasons.

      Credit also IS inherent to relationships between suppliers and manufacturers (though in this case it’s someone else lending the manufacturers money to pay to the suppliers). That’s of course true of every other business relationship that involves such high volume (imagine buying the electronic pieces parts for a 150,000 unit model line, for example). But the issue is particularly urgent in the car business because 1) it is very cyclical, and if you mess with that cycle it’ll affect multiple months of business, and 2) suppliers are in fairly dire straights–simply bc of hte competition within the industry–so they can’t really wait to get paid.

      As for consumer finance–you are correct. Basically no one is lending to anyone with a credit score under 700, though the fact that the car dealers don’t have the cash to lend makes it worse.

      • JTMinIA says:

        If car makers have placed themselves in the position of being dependent on their in-house financing to sell their product, then that seems to be another aspect of the auto industry that needs to be fixed. The only other industry I can think of (off the top of my head) that’s close to being in this position is housing, but, even for them, it’s nothing like 50% in-house financing.

        Wasn’t part of the problem with credit caused by allowing investment banks to be banks and v.v.? Then why allow car makers to be banks?

        • emptywheel says:

          Why does that need to be fixed? The biggest problem with auto financing is that it led to longer loans (5+ years instead of 2-4) which led to people being upside down on their loan. But at least thus far, auto loans haven’t been shown to have the kind of defaults that mortgage and credit have.

          Also note, furniture and appliance stores also self-finance–which is how they can give 0% finance for several months after you purchase something.

        • bmaz says:

          Yeah, I don’t think even the 60 month financing was ever a problem for the in house finance folks, and they did that after credit unions started doing 60 month loans; it didn’t start, to the best of my knowledge, with the in house finance arms. I know for a fact that GMAC was still at 48 months when my mother’s credit union would go 60 months and on certain luxury cars 72 months.

          Financing their customers on cars did not make these guys banks; expanding into other credit areas and mortgage areas did. At strictly the car level, this all worked quite well actually.

    • bmaz says:

      Please understand that my real personal knowledge on a lot of this is getting long in the tooth; but i think the answer to your question is both. And in two senses. First, few people pay cash for a car these days, so no financing means no sales which means a halt in production. Second, my guess is that both GMAC proper and the independents are not lending, so it is bad on both ends.

      Bottom line is

      On the other hand, if providing loans was more integral to the business of building cars, then the drop from 50% to 6% is more critical.

      yes that is indeed absolutely critical. It is going to kill them all, the foreign marks too, over time if the credit/economy situation is not resolved.

      I don’t know about Chrysler, if you want my take, they could have been given up for dead at almost any point they were not owned by Mercedes; but have always been kept around. Certainly Ford and GM could have cashiered them at any number of times if they had wanted to and could have gotten away with it.

      GM and Ford have both been changing their acts and restructuring/retooling for a different future already and are far more along in those efforts, at least in plans, than most realize. It has also left them very vulnerable to exactly what has happened. I, personally, think they deserve the shot at continuing where they were already headed.

      • bmaz says:

        And I focused on the consumer credit portion of the equation because I thought that was the focus of JTMinIA’s question, but EW is exactly right about the flooring, which goes hat in hand with what I briefly was describing @8 above.

    • jayackroyd says:

      Also note the benefit in closing the sale. Before they had a finance arm, the customer might well be in the early evaluation stage. The “you can take this off the lot right now” pitch works better if the dealer can do the financing.

  9. jayackroyd says:

    This is somewhat offtopic, but since atrios pointed it out a few days ago, it’s really starting to bug me.

    Prima facie, any bailout is a flat our violation of the WTO accords. Has anybody addressed this? (And I really regret missing Krugman, because he could have.)

    • bmaz says:

      In the first place, I don’t have it at my fingertips, but I have read a pretty thorough takedown of this simplistic statement; but, more importantly, the only other interested parties are going to suffer if the Big 2.5 go down too, so even if they could, they will not be complaining. And you don’t think the subsidization the foreign marks have is a part of a defense to such a flimsy assault?

  10. jayackroyd says:

    I’d appreciate the link, bmaz. No rush.

    It’s entirely possible that foreign governments would see the fallout from the collapse of the US auto industry as worse than the WTO rule violations involved. I’d expect, in that case, any bailout to be pre-negotiated with the EU and Japan.

    As for foreign subsidies in auto markets, I know of nothing approaching this scale, and would expect the US automakers would be the first to the GATT if this took place.

    • emptywheel says:

      This report gets at the reasons why the transplant manufacturers don’t want GM to go under. THe short version is that the supply chain is so intertwined, and GM is so big, that if it goes, it’ll bring a number of suppliers, basically interrupting the supply chain for all the manufacturers in the US.

      Remember how the American Axle strike stalled GM production? You’d see something similar happening to the entire industry.

  11. jayackroyd says:

    Thanks Marcy. And you figure the Europeans will use this as an opportunity to do some subsidizing of their own? I seem to have seen something about this a week or so ago.

  12. bmaz says:

    Jay, I gots ta get back to work on a project I am in the middle of. If I can find it later, I will get it to you. I did a quick Google and could not find what I am referring to. But as Marcy also cited, I just don’t think the foreign marks and their home countries care; it is their interest right now to keep the ship up, and not just for the suppliers angle, but also, they depend on the American economy and if Big Auto goes, it all goes.

  13. emptywheel says:

    EVERYONE (with the possible exception of the Koreans, though I’m not sure) is ALREADY talking subsidies. Gm’s forecasts have every market save Asia Pacific contracting seriously in the next several years.

  14. CasualObserver says:


    When nationalizing a large business, the cost of compensation is so great that many legal nationalizations have happened when firms of national importance run close to bankruptcy and can be acquired by the government for little or no money. A classic example is the UK nationalization of the British Leyland Motor Corporation.

    At other times, governments have considered it important to gain control of institutions of strategic economic importance, such as banks or railways, or of important industries struggling economically. The case of Rolls-Royce plc, nationalized in 1971, is an interesting blend of these two arguments. This policy was sometimes known as ensuring government control of the “commanding heights” of the economy, to enable it to manage the economy better in terms of long-term development and medium-term stability. The extent of this policy declined in the 1980s and 1990s as governments increasingly privatized industries that had been nationalized, replacing their strategic economic influence with use of the tax system and of interest rates.

    Nonetheless, national and local governments have seen the advantage of keeping key strategic assets in institutions that are not strongly profit-driven and can raise funds outside the public-sector constraints, but still retain some public accountability. Examples from the last five years in the United Kingdom include the vesting of the British railway infrastructure firm Railtrack in the not-for-profit company Network Rail, and the divestment of much council housing stock to “arms-length management companies,” often with mutual status.

    United States

    1917 All United States railroads were nationalized as the United States Railroad Administration during World War I as a wartime measure but were returned to their private owners almost immediately after the war.

    1939 Organization of the Tennessee Valley Authority entailed the nationalization of the facilities of the former Tennessee Electric Power Company.

    1971 The National Railroad Passenger Corporation (Amtrak) is a government-owned corporation created in 1971 for the express purpose of relieving American railroads of their legal obligation to provide inter-city passenger rail service. The primarily Freight Railroads had petitioned to abandon passenger service repeatedly in decades leading up to Amtrak’s formation.

    1976 The Consolidated Rail Corporation (Conrail), another government corporation, was created to take over the operations of six bankrupt rail lines operating primarily in the Northeastern United States; Conrail was privatized in 1987. Initial plans for Conrail would have made it a truly nationalized system like that during World War I, but an alternate proposal by the Association of American Railroads won out.

    2001 In response to the September 11th attacks, the then-private airport security industry was nationalized and put under the authority of the Transportation Security Administration.

    2008 In September 2008, the government initiated the nationalization of Freddie Mac and Fannie Mae.

  15. undrum1 says:

    Let’s buy GM. The US defense and ag industries are effectively nationalized, why not nationalize the production of something everyday Americans use regularly?

  16. skdadl says:

    O/T: Obama gives political ambassadors their pink slips.

    The incoming Obama administration has notified all politically-appointed ambassadors that they must vacate their posts as of Jan. 20, the day President-elect Barack Obama takes the oath of office, a State Department official said.

    I must say, I like this young man’s style. Good-bye, Mr Wilkins.

    Please, may we have someone nice next time? We’ve had two Bush cronies in a row who waggle their fingers at us and scold.

    Pedantry: Someone might alert the WaPo to check the Chicago Manual on the subject of hyphens, adverbs, and adjectives. That “politically-appointed” is a real ouchie.

    • kspena says:

      I’ve heard Dean’s name mentioned a few times for Health & Human Services. I’d take that seriously considering his achievements in medicine, as govenor of Vermont and as a political organizer and administrator.

    • Neil says:

      Thank you for posting that. It was definitely written by a fan, nonetheless it makes some great points about where recent Democratic victories have come from, and ask the question, will we rule that way too?

  17. Oval12345678akaJamesKSayre says:

    Can Americans borrow their way out of a massive debt problem? It sounds stupid and insane to me, but that has never stopped us before. What sucker is going to lend us more money? Just wait until the Japanese banks, the Chinese banks and the Saudi banks start turning in their dollar holdings for Euros or Yens. Then we will be working for nothing for several years, just to pay off our debts.

  18. plunger says:

    Remember what Rove said about “discernible reality?” The globalist banksters are kicking the plan into high gear now.

    By nationalizing industries and banking, via trillions “lent” into (stolen from) the system, they have effectively rendered irrelevant every historic marker, milepost, chart or reference point by which economies, investors and just plain citizens once navigated through their lives.

    They have eliminated true north, broken the compass and caused the sun to rise in the west and set in the east. They are enacting the “class war” as we speak. This week, in southern Florida, drivers who are rich enough can provide their personal information and pay to drive in the fast lanes, while the rest of us sit in traffic.

    Same with airports – want to pass through security fast? Pay a price, give them all your personal information, and zip right past those who will soon grow to despise you – just like those drivers stuck in traffic.

    Fake terror in Mumbai in order to invade Pakistan? There are no coincidences. This was all planned years ago. Are you seeing it? Is it discernible to you?

  19. MadDog says:

    Well, after finishing reading all 3 of the “Alms for the Poor” begging plans, here’s my take:

    1. Ford – Style: Readable and mostly upbeat. Content: Seemingly transparent. Translation: Better Marketeers.

    2. GM – Style: Reminds one of Richard Nixon. Furtive, dark and more than a bit paranoid. Content: With a 1950 mindset, still thinks that having 40 different models in 2012 is a good thing. Translation: I am not a criminal!

    3. Chrysler – Style: Written by the 7th VP of Janitorial Services because the more senior executives were too busy mailing out resumes to failed companies. Content: Getting ready to be thrown under the bus via Chapter 7 because only a fool would lend them money. Translation: I’ve got a bridge I’d like to sell you.

  20. prostratedragon says:

    GMAC seems to have begun toward the end of the 1920s, as a financial innovation intended to keep the auto boom of that decade going, according to a cite in this handy little book that I happen to be reading.

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