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For G.m., A Subprime Solution

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There goes the General Motors pre-I.P.O. roadshow.

President Obama visited Detroit last week and declared: “We expect taxpayers will get back all the money my administration has invested in G.M.”

The president’s comment came the same day that G.M.’s chief executive, Edward E. Whitacre Jr., avowed, “We don’t want to be known as Government Motors,” and told an industry conference, “If you liked our first-quarter financial results, stay tuned for our second-quarter financial results.”

All this shilling has a subtext: General Motors is planning to file documents soon with the Securities and Exchange Commission to pursue an initial public offering this year. It has hardly been a secret, with Mr. Whitacre’s mentioning the prospect of an I.P.O. at nearly every turn.

That helps explain the timing of General Motors’ biggest deal since it emerged from bankruptcy in July 2009. Two weeks ago, the company agreed to buy AmeriCredit, a subprime lender, for $3.5 billion. At the time, industry insiders whispered, not so quietly, that it was meant to dress up G.M.’s sales numbers before an I.P.O.

Last week, Mr. Whitacre appeared to acknowledge as much. “It strengthens the I.P.O. because it shows we have a credit organization just like Ford and Toyota,” he told The Detroit News, suggesting that AmeriCredit would substantially increase vehicle sales. Indeed, analysts have estimated that AmeriCredit could increase G.M. sales by 10 to 20 percent a year.

In other words — and take a moment to think about what this means — G.M. plans to prod sales of its vehicles by using AmeriCredit to extend loans and leases to automobile customers with questionable credit. (That’s why they are called subprime loans.) These are the same customers who could very well be denied a loan by other lenders. But prudent lending is not at the top of G.M.’s to-do list: it needs to move its vehicles off the lot and it needs to do so quickly.

As Mr. Whitacre bluntly put it, “When you own somebody, you can tell them what to do.”

When General Motors last owned a financing arm, GMAC Financial Services, it was its mortgage business, Residential Capital or ResCap, that got into trouble, not its auto loans. In 2007, G.M. sold off 51 percent of GMAC, which ultimately required a $17.2 billion bailout as the housing market imploded.

Still, General Motors arguably exploited GMAC, using it to make some bad loans so it could increase car sales to what now look like unsustainable levels. (The company, by the way, held talks to repurchase GMAC, now Ally Financial, but instead chose to buy AmeriCredit.)

So here we go again, three years later, and G.M. is buying a subprime company to finance cars for people who may not be able to afford them, and given high unemployment levels, may not even have jobs to start saving for one. And yes, we, the taxpayers, still own 61 percent of the automaker.

“After G.M.’s experience with GMAC, which left G.M. seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if G.M. focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans,” Senator Charles E. Grassley, the Iowa Republican, said in a statement.

So GM can now ramp up sales again by lending to people with poor records?

That ended with a great success last time...

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So GM can now ramp up sales again by lending to people with poor records?

That ended with a great success last time...

You couldn't make this up could you? More sub-prime. 46% liar loans in UK in last two years. More QE even though it hasn't worked and hasn't worked for Japan in last 20 years. Government trying to get banks to lend more. All stuff that governments should have banned immediately after the crisis since it got us into this shit, but are instead encouraging. What do they really think will be the end result? Absolute madness.

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So here we go again, three years later, and G.M. is buying a subprime company to finance cars for people who may not be able to afford them

Lessons heeded - none. Business model - continue producing shit product for those with no money.

Going to go far - not.

Sums up the US.

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