GM's emphasis on subprime loans sends wrong message

General Motors announced last week that it is purchasing AmeriCredit Inc. so that it can make more subprime auto loans.

Considering that GM was one of several companies bailed out by American taxpayers last year and that losses on subprime loans were largely responsible for those companies' problems, we think this is the wrong message for GM to be sending.

Granted several of those companies were hurt mostly by making subprime loans for homes, on which defaults can hurt a lender much worse than defaults on car loans. It's easier to repossess a car and resell it for its approximate value than it is for a house.

But if someone clearly can't afford a new car and will likely have it repossessed, what is to be gained by selling such a car to that person?

Perhaps GM simply wants to make more new-car sales now - that may be effectively canceled by repossessions later - so it can impress possible investors as it gets ready to sell stock to the public again (the U.S. government currently owns 60.8 percent of GM's stock). When GM announced that it was looking to make more subprime loans, Kirk Ludtke, senior vice president of CRT Capital Group, told The Associated Press, "There's a real sense of urgency on GM's part to maximize its sales” as it gets closer to the stock offering.

So this whole move may be basically GM's latest attempt to mislead the public about its financial viability.

GM North America President Mark Reuss said in June that GM gets 1 percent of its sales and leases from subprime buyers while Honda gets 20 percent due to better lending access.

Other sources have said that GM gets 4 percent of its sales from subprime loans, matching the industry average. In GM's defense, though, perhaps those sources weren't including leases in sales. According to AP, GM currently gets just 7 percent of its sales from leases compared with an industry average of 21 percent.

In April GM Chairman and chief executive officer Ed Whitacre boasted in ads blanketing the airwaves that "we have repaid our government loan, in full, with interest, five years ahead of the original schedule.” In a press release he said GM was able to repay the loan "because more customers are buying vehicles like the Chevrolet Malibu and Buick LaCrosse.”

But Sen. Chuck Grassley of Iowa said in a letter to Treasury Secretary Timothy Geithner that GM's loan repayment "appears to be nothing more than an elaborate TARP money shuffle.”

As Kathleen Pender of SFGate.com reported, GM "didn't repay any of the loans from its earnings.” Repayment came from "other TARP funds currently held in an escrow account,” according to a report by the special inspector general overseeing the Troubled Assets Relief Program. In other words, GM repaid its government loan with other government money.

Actor James Garner once said that the most creative people in Hollywood were the bookkeepers. At least in GM's case that may be true of the auto industry as well.

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