July 28, 2012

WHAT COULD GO WRONG? GM Ramps Up Risky Subprime Auto Loans To Drive Sales. “President Obama has touted General Motors (GM) as a successful example of his administration’s policies. Yet GM’s recovery is built, at least in part, on the increasing use of subprime loans. . . . Potential borrowers of car loans are rated on FICO scores that range from 300 to 850. Anything under 660 is generally deemed subprime. GM Financial auto loans to customers with FICO scores below 660 rose from 87% of total loans in Q4 2010 to 93% 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% to more than $2.3 billion. The second worst category, 540-599, rose 28% from about $3.4 billion to $4.3 billion.”