GM Happenings: New-Found Profits and Buyer Financing Troubles

GM's Fairfax plant

General Motors—and maybe the U.S. Treasury, hoping for a payback—has been celebrating the company’s first-quarter earnings report, which put out news of a solid $865 million in earnings on global sales of $31.5 billion. This was GM’s first quarterly profit since 2007 and may signal real progress if not a turnaround.

Where did the money come from? Paul Eisenstein says it’s owing to a lot of cost-cutting and trimming of management, a strong presence in China, and buyer acceptance of its new models, like the Chevy Equinox and Buick LaCrosse. But it will take a few more good quarters until the word “turnaround” will apply.

There’s talk about a stock offering (IPO), which may come later this year and help to repay the billions spent on the GM bailout. But there are plenty of hurdles the company will need to clear before that happens.

A big obstacle is the buyer financing problem. GM needs to increase sales to less-credit-worthy buyers in order to keep pace with its competitors. Honda, for instance, relies on so-called subprime buyers for 20 percent of its sales; GM gets 1 percent from this group.

The company’s financing arm is now called Ally Financial (formerly GMAC), of which Chrysler is part owner. The conflict of interest is palpable and ridiculous. Chrysler today announced a new agreement with Santander Bank to finance loans to subrime credit buyers, which comprise some 22 percent of Chrysler customers. GM has talked about buying back control of Ally or starting its own financing company.

Closing the dealThe issue is important, because while very few dealers finance car sales, nearly all will arrange financing (about 70 percent, says one source, covering 11.5 million vehicles this year). Dealers, said a NADA spokesman, are paid about 1.5 percent of the loan amount for this service.

Heavy-duty politics enters the picture with an amendment to the Wall Street reform bill heading toward resolution today. Sen. Sam Brownback (R., Kans.) wants to exempt dealers from the proposed regulations, which the Obama administration strongly supports.

Lenders, said Obama, ought to be subject to the same standards as any local bank that provides loans. The Senate holds a cloture vote this afternoon that could see a vote scheduled on Brownback’s amendment.

So the dealers are fighting, arguing that it’s a restraint that would stifle their financing business. How much do they actually make from arranging car loans? Good question: Try getting your dealer to give you an answer.

Some think it would be a good idea to completely rewrite the laws governing auto financing (and dealer assistance in that financing). What do you think?


Find Used Cars in Your Area at CarGurus

Used Chevrolet Equinox
Used Buick LaCrosse


  1. Where did GM get those “profits”??? Well, they discarded most of their debt and laid off tens of thousands (if not more) employees over the past few years, tricked the UAW into taking phoney promises in lieu of their billions in equity, and they raked in billions upon billions from the government that now says they don’t expect to get 1/3rd of it back. Even the morons running GM can make a profit that way.

  2. I second the motion, Hollerin. It’s been dealers against consumers for far too long, and the Brownback amendment caters directly to the dealers and their lobbyists by attempting to perpetuate the game. The reason the Pentagon opposed it was that U.S. service members were being frequently gouged with predatory loan practices. Now Brownback has come back with a sop to the military that makes things even worse, the playing field still more uneven.

    The dealers are supporting it because under Obama’s proposed new consumer advocacy office, such practices–including special benefits to local/community banks–would be stopped. NADA press release is here:

    According to the Detroit News (, Obama argued that “exempting dealers ‘would allow them to inflate rates, insert hidden fees into the fine print of paperwork, and include expensive add-ons that catch purchasers by surprise’ and it ‘guts provisions that empower consumers with clear information that allows them to make the financial decisions that work best for them and simply encourages misleading sales tactics that hurt American consumers.'”

  3. I’m not completely familiar with the laws governing auto financing, but I definitely think consumers should be protected from unscrupulous lenders, and I don’t like that Brownback altered his amendment in a way that sounds like it would give members of the armed services protections that other Americans would not receive. I’m all for taking care of anyone who’s served this nation, but I don’t think everyone else should be thrown to the wolves when it comes to getting an auto loan.

Leave a Reply

Your email address will not be published. Required fields are marked *


This site uses Akismet to reduce spam. Learn how your comment data is processed.