If the shenanigans surrounding the GMAC conversion to a bank holding company haven’t gotten under your skin, then maybe this will. GMAC announced that it intends to significantly lower its lending standards in order to in its own words “… (get) back in the game.”
GMAC said that it intended to lower its minimum FICO requirement to 621 from 700 and late today indicated it would reintroduce 0% loans. This begs the question as to what the competition does in response. It’s unlikely that Toyota, Nissan and all of the others are going to sit by and cede precious market share to GM. At the same time they are hemorrhaging so do their governments start pumping in money to keep them competitive? In the end does this just become a zero sum game that maybe pushes a few more units out the door at enormous cost?
Once in motion, this process has nowhere to go but a rush to the bottom. Not for a minute will rational underwriting standards rule this process. It will be a contest to push money-taxpayer money actually-out the door in order to maintain some level of sales. GM won’t be alone but it can claim the honor of being the first.
Note: If you were as confused as I was about the events surrounding the conversion of GMAC to a bank, the debt/equity swap and exactly what if any the Fed’s conditions were in terms of the bank holding company status then let me direct you to Felix Salmon’s late post today. He makes some excellent points. I will have my own but I need to think it all over first. At the very least it is duplicity at the highest levels of government.