President Obama continues to tout the $50 billion bailout of General Motors (GM) as a successful example of his administration’s policies. However, according to David Hogberg’s Friday report for Investor’s Business Daily, financial reports reveal that GM is relying increasingly on subprime loans to boost sales.
Potential borrowers of car loans are rated on FICO scores that range from 300 to 850. Anything under 660 is generally deemed sub-prime. Customers who received GM loans with FICO scores below 660 rose from 87 percent in Q4 2010 to 93 percent in Q1 2012.
The worse the FICO score, the bigger the increase. From Q4 2010 to Q1 2012, GM Financial loans to customers with the worst FICO scores — below 540 — shot up 79 percent to more than $2.3 billion. The second worst category, 540-599, rose 28 percent from about $3.4 billion to $4.3 billion.
Subprime lending – the foundation of the Dodd-Frank Act, which forced banks to grant loans to people who could not afford to pay the mortgage – also played a significant role in the housing market crash.
“Subprime lending in cars is not as risky as in housing,” Hogberg theorized. “Car loans are cheaper, so customers have an easier time making payments. When they do go into default, the cars can be repossessed and sold to recover some of the loss.”
Well, Albert Einstein’s theory is that “doing the same thing over and over and expecting different results” is the very definition of “insanity.”
According to Experian, as reported by Reuters in May, while the “rates of late payments and repossessions by lenders also declined in the quarter,” this more aggressive lending practice “increases the chances of another round of losses for banks if borrowers lose their jobs and cannot keep up their car payments.”
American taxpayers have already lost millions in the GM bailout.
Despite the administration’s claim that GM is ready to repay its bailout tab – a claim asserted in a June 2011 While House report, given the artfully misleading title of, “The Resurgence of the American Automotive Industry” — a July 25 report, issued to Congress by the Inspector General, said the automaker still owes taxpayers nearly $42 billion.
Adding to those losses — as reported by The Detroit News — General Motors stock fell another 1.2 percent Wednesday, closing at $18.80, down $0.22.
On July 3, Ed Carson of Business Investor’s Daily reported that GM shares had already fallen to $19.57.
The government still owns 500 million shares in the auto company.
“Shares would have to hit $53 for the government to break even.”
Mitt Romney told The Detroit News last month that the government should exit GM quickly to cut taxpayer losses.
“The president is delaying the sale of the shares to try and avoid the story that the taxpayer took another loss. I would get the company independent from government and run for the interests of the consumer and the enterprise and its workers — not for the political considerations of government officials.”
But Tim Massad – Obama’s assistant Treasury Secretary, who oversees the government’s GM stake — told The Detroit News in May the Obama administration has no plans to sell the stock.
“We have to balance maximizing recovery for the taxpayers with the speed of exit.”
When the stock fell to $19.57 on July 3, American taxpayers lost $16.6 billion.
When the stock fell to $18.80 on Wednesday, the loss rose to $17.25 billion.
Reinsert Einstein’s definition of “insanity” here.
In April, Obama’s Treasury Department claimed that “the auto industry rescue saved more than one million American jobs.”
However, The Philly Inquirer reported in May that Obama has known for over three years that his administration’s claim is false.
“Obama’s economic advisers told him during an April 2009 meeting that auto-industry job losses would only be a fraction (10 to 20 percent) of these claims, even for the much weaker Chrysler. The advisers reported the obvious: Bankruptcy would not cause all General Motors’ jobs to be lost and, even with cut backs, suppliers would pick up other work. But these private warnings were never admitted to the public.”
In other words, Obama is lying — intentionally.
Also, a closer look at the June 2011 White House report reveals that most of the taxpayer’s money went to protecting unions.
“As Kokomo’s UAW Local 685 president Rich Boruff put it. “We hit rock bottom. We got down to 3,200 members [at Local 685]. Now we’re at 4,200. We’ve gained a thousand new members, we’ve got new product, and business is booming.”
Considering GM’s financial reports, “booming” is just another word for “controlled detonation.”